Why the South32 (ASX:S32) share price reached a 2-year high today

Shares in the mining and metals company have made a good start to the week

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The South32 Ltd (ASX: S32) share price has finished the day higher, up 0.27% to $3.66 at the closing bell.

Shares in the mining and metals company have started the week well, with investors clipping the ticket on a small gain since their close of $3.58 on Friday.

Today’s price level marks a 2-year high for the company, after its shares went on a one-way journey south from 2019-2020, well before the pandemic ensued.

Why the recent gain in the South32 share price? Let’s dive in and take a look.

What’s been happening at South32?

To exit the month of September, South32 advised it had increased its ownership stake in aluminium smelter Mozal Aluminium to 72.1%.

Mozal is located in Mozambique and is a split ownership between South32, Mitsubishi and the Mozambique government.

It has a production guidance of 273kt in FY22 and FY23 on South32’s former 47.1% stake, meaning the guidance could likely be adjusted with the company’s deepened investment.

The accretive transaction was done on an acquisition multiple of 3.6-times earnings before interest, taxes, depreciation and amortisation (EBITDA), and will be funded with cash the company has on hand, which was US$553 million as of August.

Specific details of the transaction are that it was on a purchase price of US$250 million, includes a joint profit-sharing agreement on the increased holding with partners Mitsubishi, and that adjustments for working capital and debt are to be made.

Aside from this progress, two of the key base substances South32 has exposure to – coal and aluminium – have both been fetching premiums lately.

Coal pricing has catapulted 338% higher in the last 12 months, and most recently spiked again at September’s end.

There it jumped by US$63.5/tonne in around 2 weeks, whereas the price of aluminium has been crawling higher over the past 12 months too.

Most recently it’s popped around 6% to trade at US$3,029/tonne, a shade below its all-time highs of 2008.

The South32 share price is sensitive to volatility in the commodity markets, as it is an ASX resource share that produces commodities.

So with the recent strengths observed in the company’s underlying markets, it begins to form the picture as to what’s fuelling the South32 share price lately.

South32 share price snapshot

The South32 share price has climbed 48% this year to date, delivering an outsized return at this level.

It’s also gained 67% in the last 12 months, and 7% in the last month.

Each of these returns have outpaced the S&P/ASX 200 index (ASX: XJO)’s return of about 20% in the past year.

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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