S32 (ASX) general

Originally posted by Ashentegra: ↑

Interesting discussion and thank you all.

Selling Illawarra was the right thing to do. The arguments about political correctness were quaint. Both sides wrongly overlooked the significance of the unceasing heavy capex in coal mining. Sure it made money, yet equally required big SIB investment so net-net was always less than headline. S32 now has $US1.5b flowing its way in coming periods to spend on 'future facing commodities', if it can find a worthwhile deal.

I restate my view S32 is a multi-mineral miner, agnostic on where it invests and able to build out where opportunity presents. A very powerful feature.

Another overlooked reality is that half the asset base is in the Aluminium chain. This is barely breaking even at this stage of the cycle. Any price improvement goes straight to the bottom line. I do fret about Hillside - South Africa is corrupt, dangerous and governed by fools doing nothing on electricity supply. Its grid weakens more every week.

It is easy to sneer and jeer at Hermosa-Taylor 1a and its low IRR. It carries the burden of so many initial costs - power supply, roads, facilities, community and permits. Later developments will be flattered by their relatively modest add-on cost. Meanwhile, GK & team have to grit their teeth and endure the short-term costs and criticism.

We have seen S32 print money in better times. It will again, we just dont know when.

Ash

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I suspect GK and team have bullish views on Hermosa, which extend beyond a single zinc mine and have not been shared with the market. If that's all we end up with for $2.2b (one zinc mine) I would be annoyed. However as you correctly say, it would be much cheaper and simpler to give the go ahead for Clark and/or Peake and Flux with all that infrastructure in place as a stage 2 or 3 manganese or copper project. We also do not know what's been implied or half-promised behind the scenes regarding US federal government funding for the Clark site.

We exited thermal coal in South Africa a few years ago. The S32 portfolio has been a work in progress since the BHP demerger. I suspect it's gradually evolving into what management originally intended back in 2015/16. I could not agree more with what you wrote about the mess South African infrastructure and governance is in. I have a couple of South African friends whom I worked with in Asia. None of the South African people I have met while working abroad were keen to return home. It is unusual, and sad to hear people talk so openly and negatively about their home country, but it highlights the complexities of that state. It is also sad when countries like Namibia and Botswana (even The Congo, to a lesser extent) are touted as amongst the better places to operate a mine in Africa. South Africa never rates a mention.

The Intelligent Investor (8th March 2024) is negative on S32 and calls it a sell, saying:

and

However, the met. coal sale has been widely accepted. Macquarie upgraded us to Outperform last month (with a higher price target) after the sale announcement; and James Gerrish at Market Matters was satisfied with the deal, taking a very similar view to yours, Ash.

As were Goldman Sachs (as reported in The M.F. on 1st March):

$0.97b vs $1.65b is a vair discrepancy and would pay for a fair few picks and shovels to help get Taylor operational

Aluminium has had a pretty good start to the year too and $2,456 a tonne is a 12 month high. Base metals seem to be following the copper price upwards, at least in the short term.

Good luck to all holders, whom I hope did not spend their dividend payment all at once