The South32 Ltd (ASX: S32) share price was one of the best performers among the large cap miners in 2021.
Over the 12 months, the mining giant's shares rose a sizeable 62%.
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Why did the South32 share price charge higher in 2021?
Investors were buying South32's shares last year thanks partly to its strong performance in FY 2021.
For the 12 months ended 30 June, South32 reported a 4% increase in revenue to US$6,337 million and a 32% lift in EBITDA to US$1,564 million.
This strong result was underpinned by record production at Worsley Alumina, Brazil Alumina, and Australia Manganese.
Positive outlook
Also giving the South32 share price a boost was its increasingly positive outlook.
This is largely due to its exposure to aluminium and the recent acquisition of a stake in the Sierra Gorda copper mine in Chile.
Goldman Sachs is particularly positive on South32's aluminium exposure.
It recently commented: "S32 is positive on aluminium over the medium to long run and is seeing positive sign posts on China production caps with greater focus on environmental issues, positively impacting price. Even with recent pullback in pricing over the last month, pricing remains at strong levels, with S32 expecting demand to continue to grow and inventories to shrink."
The broker expects this to lead to very strong free cash flow generation, which it believes will underpin very big dividends.
Goldman said: "We forecast a FCF yield of c. 16-18% in FY22 & FY23 (over 20% at spot), driven mostly by exposure to base metals (aluminium & alumina c. 50% of FY22 EBITDA, zinc/nickel c. 20%). We assume the buyback continues to be extended (at US$250mn p.a) and S32 continues to pay out 70% of earnings (40% ordinary, 30% special dividend component). On our estimates, S32 is on a dividend yield of c. 11-12% in FY22 & FY23 [~9-10% at today's levels]."
In light of the above, the broker believes the South32 share price can keep rising from here. It has put a conviction buy rating and $4.40 price target on its shares, which implies potential upside of 11%.
