This ASX share is a ‘cheap’ way to invest in green energy transition

A mining company as a ‘green’ investment? The Wilson Asset Management team reckons this stock is exactly that

| More on:
boy dressed as an eco warrior and holding a globe.

Image source: Getty Images

The Glasgow Climate Summit has now kicked off, with the Australian government only just signing off on a 2050 net-zero target to take to the conference.

If you think green energy is inevitable as the world tries to slow man-made climate change, there is one ASX share that a trio of experts has nominated as a cheap way of gaining exposure.

And it’s a stock that, at face value, is not obvious as a “green” investment.

According to Wilson Asset Management portfolio managers Catriona Burns, Matthew Haupt, and Oscar Oberg, their WAM Leaders Ltd (ASX: WLE) portfolio currently holds South32 Ltd (ASX: S32) shares.

South32 is a Perth mining company that extracts a variety of metals in locations around the world.

A mining company as a green investment?

A recent transaction by this ASX share piqued the interest of the Wilson team.

“Recently, South32 announced the acquisition of a 45% interest in the Sierra Gorda copper mine in Antofagasta, Chile,” the portfolio managers said in a memo to clients.

“Antofagasta is known as one of the largest international copper mining regions, with prime access to people, suppliers, and infrastructure. 90% of the power requirements of the region are generated from renewable energy sources.”

South32 has published a strategy to reshape its investments for a low-carbon future. Burns, Haupt, and Oberg said the Chile buyout fits into this narrative.

“Following completion, over 40% of South32’s earnings will come from base and precious metals, which are experiencing unprecedented demand from electric vehicles and renewable power, infrastructure, transmission, and storage,” they said.

“Over 35% of earnings will be attributed to the aluminium value chain, which is a lightweight metal used for electric vehicles and construction.” 

They added that close to 20% of earnings will be from manganese, which is “required for steel production and recycling, with emerging demand in electric vehicles”. 

“The balance (less than 5%) will be from metallurgical coal which is required to support emissions reduction targets in the steel sector.”

The acquisition makes financial sense too

The Antofagasta buyout also makes financial sense for the ASX share, according to the Wilson team.

“The transaction is expected to be immediately earnings accretive for South32 and consideration paid was at a discount valuation to both South32 and comparable pure-play copper peers.”

South32 shares also provide a reliable dividend income, and the portfolio managers remain bullish on them.

“South 32… has a strong balance sheet and is an inexpensive way of gaining exposure to the green energy transition.”

The South32 share price has gained more than 44% this year so far and closed on Friday at $3.57, down 0.28% on the day.

Should you invest $1,000 in South32 right now?

Before you consider South32, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and South32 wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor Tony Yoo has no position 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.

More on Resources Shares