The South32 Ltd (ASX: S32) share price is outperforming after the company's CEO painted a bullish outlook and a top broker forecasted "material upside to shareholder returns".
Shares in the diversified mining group jumped 2.7% to a two-week high of $4.95 during lunchtime trade.
In contrast, the S&P/ASX 200 Index (ASX: XJO) is down 0.06% at the time of writing. The BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price are also lagging, with gains of 0.72% and 0.05% respectively.
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South32 share price powers up for the future
South32's chief executive Graham Kerr credits the group's repositioning as a supplier of future-facing metals for the market interest, reported The Australian.
"We had a very large exposure on a revenue basis to a lot of the bulks: the energy coal, the met coal, the manganese," he said.
"If you look at the transactions we have done over the last couple of years and if you normalise met coal price, our exposure to forward-facing metals such as copper, aluminium, zinc now makes up roughly 85 per cent of our revenue stream."
Getting the mix right
South32 has come a long way since it was spun out of BHP in 2015. Back then, many called it "Crap Co" as BHP dumped commodities it didn't want into the separately listed entity.
But under the stewardship of Kerr, the miner acquired a number of mines to gain increased exposure to copper, nickel and other metals.
"We have developed the pre-feasibility study on Taylor, which is a zinc deposit in Arizona," explained Kerr.
"We bought Sierra Gorda in Chile to get copper exposure, we've increased what we have in nickel in Columbia and we have Ambler Nickels going on at the moment in Alaska."
"That transformation, not only in commodity but also country risk has helped us push forward."
Bullish outlook for the South32 share price
Thanks to the COVID-19 pandemic, war in Ukraine, the electric vehicle (EV) revolution, and the transition to a low carbon world, South32's earnings have surged. The miner posted a record first-half net profit of over $1.4 billion last month.
What is also helping sentiment towards the South32 share price is a bullish note by Macquarie Group.
The broker noted that South32 shares have outperformed their iron-ore dominated peers since the start of January.
This is due to South32's favourable mix of metals that has caught the imagination of ASX investors.
What are South32 shares worth?
"Our base-case forecast sees S32 return a free cash flow yield of 11% in FY22E, increasing to 25% in FY23E, the highest amongst large-cap peers," said the broker.
"Using a [free cash flow] payout ratio of 90%, total shareholder return could amount to ~US$800m, 45% higher than our base-case forecast."
Macquarie is recommending the South32 share price as "outperform". The bank's 12-month price target on the shares is $7.
