South32 (ASX:S32) share price climbs as $2bn copper mine stake gets green light

South32 is another step closer to adding a copper mine to its list of projects…

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The South32 Ltd (ASX: S32) share price is edging higher on Thursday following its latest update.

In afternoon trade, shares in the diversified mining and metals company are up 0.98% to $3.59 apiece. This comes after a positive step forward in the company’s endeavours to acquire a 45% stake in the Sierra Gorda copper mine in Chile.

Let’s take a look at what it means for the ASX-listed mining giant.

Copper go-ahead gives South32 share price a push

Investors are snapping up shares in Australia’s sixth-largest listed mining company today. The enthusiasm likely stems from South32’s Sierra Gorda transaction update released to the market this morning.

According to the release, KGHM Polska Miedz (KGHM) has advised it will not exercise its pre-emptive rights to increase its shareholding in the Sierra Gorda mine.

KGHM is a Polish mining company that owns the other 55% portion of Sierra Gorda. The decision means South32 can proceed with acquiring its full 45% stake as originally intended. In turn, investors are looking upon the South32 share price fondly today.

Furthermore, South32 expects completion of the transaction to occur early in the 2022 calendar year. As per the original announcement, the copper mine acquisition comes with a price tag of US$1.55 billion (A$2.15 billion). Another US$500 million will be made available dependent on copper production rates between 2022 and 2025.

The acquisition comes at an opportune time, with experts forecasting long-term copper supply constraints. For reference, Sierra Gorda is expected to produce 180kt of copper in 2021 on a 100% basis, alongside other metals.

Analysts’ take

South32’s expansion into copper, further diversifying its operations, has caught the eye of analysts. For instance, analysts at Goldman Sachs are bullish on the company and its potential to generate significant free cash flow in the future.

Currently, the broker holds a conviction ‘buy’ rating and a $4.40 price target on the South32 share price.

Motley Fool contributor Mitchell Lawler 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.

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