S32 rallied an impressive +4.6% on Thursday, although the diversified miner has still fallen -11% so far in 2024; in February, they reported solid earnings, a slight beat on low expectations but costs remained an issue, which has led to the stock drifting lower. We expect a production uplift in the 2H of FY24, and higher production will help with unit costs, putting them in a better position.
However, the main news yesterday was the sale of their Illawarra Met Coal operation for up to US$1.65bn (A$2.54bn). Importantly, the binding deal has a big upfront cash component of US$1.050bn, plus $US250m deferred cash and $US350m price-linked contingent consideration. The price is a great one and a good outcome for shareholders given the operational complexities & risks, along with rehab liabilities at IMC.
- We like the risk/reward on offer by S32 below $3, with a 20-30% bounce being our preferred scenario.
MM likes S32 under $3
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