Why has South32 (S32) pulled back recently?

William O'Loughlin:

Question Three, Nathan from New South Wales. "Hi team. Love the show. Would like your thoughts on South 32. It has recently pulled back from an all time high after a strong October. Now some of the other minerals that it produces have also shown positive signs."

 

Shannon RIvkin:

Yeah. You want to ... I think we'll both comment.

 

William O'Loughlin:

Yeah.

 

Shannon Rivkin:

You want to have a go first?

 

William O'Loughlin:

Yep. Yeah. So, just looking at some of those minerals, you know, nickel, aluminium, lead, zinc all of which South 32 mine have had strong run ups in their price over the last six months or so. That's most likely the reason for South 32 also having a good run over this time. We have seen a pull back in some of these prices though, which could be why South 32's pulling back.

 

 

You know, nickel prices are one of those things that are benefiting from this electric vehicle lithium story. As nickel is a component in lithium ion batteries. You know, with a lot of these mining companies the metals prices are always going to be one of the primary drivers of the stock price. You know, I think that's what's going on here.

 

Shannon Rivkin:

Yeah. I was just going say, coal is their other big asset ... Is their other big commodity/asset. I didn't actually have a look up at the recent trend in those. I wouldn't be buying South 32 for a dip in price. I think you've got to be comfortable with the company as a whole asset mix, and management. I should say, nothing but positive things about them.

 

 

You know, they're now after spinning out from BHP they've got a really good balance sheet. Really, cash flow positive. Now paying good dividends. They can, I guess, make acquisitions where they see fit, which they haven't done as yet. But, you know, I think the long term looks really good for South 32.

 

 

I'm kind of a believer in China's health and future. So, certainly commodities overall over the longterm I'm a bit of a bull on. So, I think South 32 is really good exposure to that and it's probably the best name, I guess, in the mid tier right now if you find BHP and the Rio a little bit dull and probably over exposed to just the one commodity in iron ore.

 

William O'Loughlin:

Yep. Cool. Well, that's all the questions for this week. Be sure to send in your questions for next week. We'll see you then.

 

Shannon Rivkin:

Thank you for listening.

 

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