South32 reports strong production results: Is it a buy?

The shares of South32 Ltd (ASX: S32) will be on watch today after the mining giant announced its fourth quarter and full year production results to the market. By all accounts the results were excellent with strong production either meeting or exceeding guidance for the majority of its operations.

In what was clearly a busy quarter, key highlights included:

  • Record annual production at Australia Manganese, Worsley Alumina, Brazil Alumina, Mozal Aluminium and Cannington.
  • A significant increase in longwall utilisation and cutting rates at Illawarra Metallurgical Coal helped to support record annualised coal production of 10.1Mt in the June 2016 quarter.
  • Delivered Appin Area 9 and Premium Concentrate Ore projects on schedule and under budget.
  • Mining and exploration agreements made with the Anindilyakwa Land Council of Groote Eylandt. This will provide South32 with access to first quartile resource potential at one of the world’s largest and lowest cost manganese mines.
  • The company entered into an option agreement in Canada with Northern Shield Resources for Huckleberry – a property prospective for copper and base metals.

I believe management should be pleased with what the company has achieved in its first full year of operation in a challenging market. Its decision to prioritise value over volume, restructure operations, reduce its controllable costs, and improve efficiencies has proven to be a great move in my view.

All in all I believe this is a pleasing performance from South32 and one that supports the recent surge in its share price. Prior to today, South32’s share price had risen over 20% in July, making it one of the best performing shares on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) this month.

For this reason I wouldn’t expect any fireworks today, nor any sell offs like we saw with BHP Billiton Limited (ASX:BHP) after its results yesterday were a touch disappointing.

As far as resources shares go I would put South32 at the top of the list. But considering the way its share price has surged higher this month, I would hold off making an investment at the current price and wait for any potential profit-taking pull backs.

Lastly, if you own one of these three rotten ASX shares now might be a great time to remove them from your portfolio. Each could be harming your portfolio and might be best taken out in my opinion.

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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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