Monsters of Rock: Do big miners have lithium regrets?
While two of its big revenue drivers remain its metallurgical coal business in New South Wales, that will be taking a back seat in the coming years as South32 ramps up its investments in nickel, copper, manganese, zinc, alumina and silver.
One market South32 boss Graham Kerr likes is lithium, an area where only a handful of the top miners have dared to tread.
BHP (ASX:BHP) still views the market as too small and immature, though Rio Tinto (ASX:RIO) is a major bull with exploration and development prospects in Serbia and Argentina.
Fortescue (ASX:FMG) seems more interested in rare earths, but a surge in the value of his company Mineral Resources (ASX:MIN) thanks to its ahead of the curve investment in the battery metal has propelled boss Chris Ellison into the Forbes Australia rich list for the first time today in 33rd spot at an estimated wealth of $1.59b.
Prospector Mark Creasy, a major shareholder in fellow lithium miner IGO (ASX:IGO) made his debut at 48th with an estimated wealth of $1.02b.
Kerr told media in response to questions on its half-year results call today that $21 billion capped South32 underestimated the lithium sector ahead of last year’s historic boom.
A more than 50% rise in global EV sales to ~10.5m sent lithium prices skyrocketing to over US$80,000/t for battery grade chemicals and up to US$8000/t for 6% pure lithium concentrate in 2022, before a slight drop early this year.
“When it comes back to other commodities, we’ve been very clear that we do like nickel, we do like zinc, we do like copper. We think they are going to play an important role in how the world decarbonises,” Kerr said.
“We’ve made a comment previously that look, lithium was probably one that we underestimated. There’s been less supply come to the marketplace and demand has probably been stronger than we expected three or four years ago.”
But, that does not mean lithium stocks are attractive M & A opportunities now.
“So we do like lithium, but at the moment would probably make the comment that we think the majority of lithium stock is overpriced,” Kerr added.
“We’ll have a look at it, but we think the value is probably not there for our shareholders at the moment purely from a buying perspective.”
S32 will pay US$224 million or 4.9c a share to shareholders on the half year, after a 34% drop in profit after tax to US$685m. Consensus estimates suggested South32 would offer US5.2c a share, with Goldman Sachs tipping a US5.5c payout.
Its underlying EBITDA fell 27% year on year to US$1.364b, despite a slight 0.4% lift in underlying revenue to US$4.524b.
Kerr says commodity markets have strengthened, with production growth and lower operating costs expected in the second half, while a financial investment decision on the Taylor deposit at the Hermosa project in Arizona is expected in the middle of calendar year 2023.
“The long-term outlook for our business is positive as a result of our portfolio investments and high-quality development options in the metals critical for a low-carbon future,” he told the market.
South32 also added US$50 million to its buyback target, taking its total payout limit to US$2.3b, with US$158m to be returned to shareholders by September 1.
Copper equivalent production rose 12%, S32 said it had lowered or held its cost guidance largely unchanged for the majority of its operations, despite pressures from inflation.
“In the short term, we’re in a period where we’ve actually managed to get our costs well under control. We’ve had good production growth in the first half with 12%, we’ve got another 6% that come through in the second half,” Kerr said.
“Commodity prices are starting to increase versus the first half when you look at the second half.”
Gold miner Evolution (ASX:EVN) has shaved its half year dividend from 3c to 2c, paying out $37 million to shareholders.
It comes despite seeing statutory profits lift from $91m last half-year to $101m in 2022-23, with underlying NPAT up from $100m to $103m and EBITDA 13% higher at $446m.
The dividend is, however, the 20th consecutive one paid by EVN since 2013, representing over $1 billion in returns to shareholders.
Mine operating cash flow rose from $396m in H1 2022 to $477m in H1 2023, though net mine cash flow fell from $120m to $86m because of $302m of investment in projects, up from $203m in 2021-22.
Higher operating costs were in part driven by the acquisitions of the Kundana mines near Kalgoorlie, now part of its Mungari gold operations, and Glencore’s majority stake in the Ernest Henry copper and gold mine, with major capital investments also in the underground developments at Cowal and Red Lake, both due to begin producing in the June quarter.
EVN produced 327,502oz at all in sustaining costs of $1307/oz in the first half of 2023, with around $313m cash in the bank as of December 31, down from $572m on June 30.