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Why the South32 Ltd share price has been SMASHED today

Amongst the worst performers on the market today has been the South32 Ltd (ASX: S32) share price.

At lunch the diversified miner’s shares are down over 4% to $2.61.

What happened?

This morning management advised that due to elevated gas concentrations at Appin Area 7 of its Illawarra metallurgical coal operation, production has been suspended at the Area 7 and Area 9 longwalls until an investigation is completed.

As a result, the miner has revised its production forecast for the operation in FY 2017 down by at least 10% from its previous guidance of 7.9Mt.

Unfortunately, this production downgrade is likely to impact its top line due to its low inventory levels, as well as result in an increase in unit costs.

It’s not the first time the company has had issues at the operation. This year South32 faced challenging ground conditions at Appin Area 9 and had to moderate mining rates at Appin Area 7 to ensure gas concentrations were maintained at safe levels.

This meant the company needed a strong finish to the year to meet its guidance, but unfortunately that won’t happen now.

Should you buy the dip?

Whilst I think there are better options for investors in other sectors, those that want exposure to the resources sector could do a lot worse than South32.

It may be having a slightly tough time at the moment, but I suspect management will rectify this quickly to limit the impact on its full-year results.

Because of this I would choose it ahead of its peers BHP Billiton Limited (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG).

Finally, here are the better options for investors in other sectors I spoke about. I'm tipping each for big things this year.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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