South32 can extract cost savings with focus, but China's commodity downturn is a stiff headwind.
We maintain our AUD 1.85 per share fair value estimate for no-moat-rated South32 with several positive and negative forces offsetting. The company has benefited from a couple of tailwinds, notably relatively favourable recent aluminium and alumina prices, the bounce in the coking coal price thanks to cyclone Debbie, and the recent USD 85 per tonne thermal coal settlement for the annual Japanese agreement. It was a marked improvement from last year’s USD 62 per tonne benchmark and partly benefite...South32 is engaged in mining and metal production from a portfolio of assets for the commodities of alumina, aluminium, bauxite, energy and metallurgical coal, manganese ore, manganese alloy, nickel, silver, lead and zinc. As of June 30 2016, Co. operated 10 segments, which were comprised of: Worsley Alumina, South Africa Aluminium, Brazil Alumina, Mozal Aluminium, South Africa Energy Coal, Illawarra Metallurgical Coal, Australia Manganese, South Africa Manganese, Cerro Matoso, and Cannington.
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