The South32 Ltd (ASX: S32) share price could climb higher in early trade after the company announced that it will provide US$9 million exploration funding over 4 years for 60% of Inca's Riqueza Project.
What were the key terms of the earn-in agreement?
The executed earn-in agreement with South32 includes:
- Inca to transfer title of all Riqueza concessions to its newly incorporated and wholly owned Peruvian subsidiary Brillandino Minerales S.A.C.
- South32 can acquire a 60% equity interest in Brillandino by providing a minimum of US$9 million (phase 1 funding) to Brillandino for exploration at Riqueza over a four-year period
- South32 can acquire an additional 10% equity interest in Brillandino in return for all additional project expenditure needed to complete a pre-feasibility study
- Inca is the operator unless, at any time after full payment of phase 1 funding, South32 elects to assume operatorship
What else has been happening for South32?
The company reported solid half-year earnings in February which include US$1.3 billion in underlying earnings before interest, tax, depreciation and amortisation (EBITDA), up 38% on the prior corresponding period (pcp).
South32's real value add is in its strong cash flow generation ability and this was demonstrated in February with US$718 million in free cash flow in the half-year.
The good news for investors is that South32 presents a solid value stock with a dividend yield of 3.80% and a P/E ratio of 9.7x earnings.
Its former parent company, BHP Group Ltd (ASX: BHP) is 10 times larger than South32 with a market cap of $182 billion but offers a comparable 4.2% dividend. BHP's share price is up 14.3% this year but is still trading at a relatively lofty 26.6x earnings.
Fellow blue-chip miner Rio Tinto Limited (ASX: RIO) also offers a 4.1% dividend but trades on a much closer to multiple to that of South32 at 8.8x earnings. Rio's current $97.91 per share valuation is relatively close to its 52-week high, which makes it much more compelling than BHP at this point in the cycle.
For those who are looking for more growth than cash flow, I'd suggest checking out this top-rated stock in a booming industry could give you the edge as a growth investor.
