South32 expected to outperform despite cyclone damage: analysts
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The news: Macquarie analysts expect South32 to "outperform" despite the miner withdrawing guidance for its Australia manganese business, as the suspension of operations at its Groote Eylandt Mining Company (GEMCO) are expected to drive up global manganese prices.
The numbers: Macquarie analysts estimated that the infrastructure damage and impacts of suspending operations will amount to USD100 million ($152 million) of remediation capital expenditure, a three-month production impact, and shipment disruptions until the second quarter of FY25.
However, analysts modelled changes to South32 earnings per share at -13% in FY24, +12% in FY25, and +4% in FY26, as the site outage is expected to lift manganese prices.
South32 holds a 60% stake in GEMCO, which is one of the largest manganese ore producing mines in the world.
As GEMCO supplies around 10% of the global manganese market, Macquarie analysts upgraded their near-term manganese price forecasts by 16% and 5% in the 2024 and 2025 calendar years respectively.
On Wednesday, South32 shares dropped on the ASX after the miner withdrew GEMCO's production guidance, which had been estimated at 3,400 thousand wet metric tonnes for the 2024 financial year.
Over the last 12 months South32's share price has fallen 28.49% to $2.98. Macquarie has set its share target price for the company at $3.80.
The context: Macquarie noted that Tropical Cyclone Megan's damage to GEMCO's infrastructure was extensive, impacting mining, a critical haul road bridge, the wharf and port facilities.
Despite this, the financial group maintained its rating for South32 to "outperform", its highest rating band with an expected return of above 10%.
The source: Macquarie research
