The share price of South32 Ltd (ASX: S32) tumbled after the release of its quarterly production report this morning with management managing to miss just about every production target it set itself.
The misses weren't by a big margin but it isn't really a good look for a new-ish management team that split out from BHP Billiton Limited (ASX: BHP) a little over two years ago.
If there is a silver lining though, it's that the drop will give investors with a longer-term investment horizon a chance to snap up what I consider to be an attractive stock. But before I delve into what I like about South32, we should cover off what the market didn't – it's latest production figures.
The June quarter numbers are the last pieces of the puzzle that completes the miner's full year production picture. As I mentioned before, most minerals come up short of guidance. The exception was Alumina, which came in 1% ahead of Sourth32's forecast of 1.32 million tonnes. Total coal production came in just shy of the expected 7.1 million tonnes. Payable nickel production, which came in 1% above guidance of 36,000 tonnes; and payable zinc production of 70,000 tonnes, which was bang in line with forecasts.
The worst of the misses was payable silver production that came in 5% behind management's expectations of 16.5 million ounces. Other notable misses were manganese ore, energy coal and domestic coal, which were 4% behind guidance.
There were several reasons for the misses. The Illawarra Metallurgical Coal Appin colliery remains out of action, bad weather and an associated delay in the development of new mining areas affected its South Africa coal operations, and regulatory uncertainty due to proposed mining law changes in South Africa also hampered activities.
We are likely to see analysts downgrade their figures on South32 tomorrow on the back of the report, but I believe any downgrade will be modest. The lower-than-expected production figures also don't take away from the fact that the miner is cashed up and has a number of profit growth levers it can pull.
As I wrote last month, I would be keen on topping up my holdings in South32 if the stock came back towards the $2.50 mark or so. Hopefully with this production report, I won't have to wait too long.
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