Morningstar | South32 Benefiting from Higher Near-Term Prices but China Exposure a Key Longer-Term Concern
Spun out from BHP in 2015, South32 is one of few global midtier diversified miners. Commodity exposures include alumina, aluminium, manganese ore, manganese alloys, coal, nickel, lead, zinc and silver. However, with the exception of silver, all are tied to China's fixed-asset investment boom, which we think faces meaningful headwinds in future. The generally bottom half of the cost curve operating cost positions and robust balance sheet are positives. However, we think most of South32's commodity end markets are likely to suffer from weak demand and plentiful supply. Assets are unlikely to generate sustainable excess returns in the long run.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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