South32 share price falls on Q4 update and US$1.3b impairment

This mining giant had a strong finish to FY 2023 but announced a major impairment.

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Key points

  • South32 ended the financial year strongly
  • This underpinned annual production records across several commodities
  • On the negative side, South32 has announced a US$1.3 billion impairment of its Hermosa project

The South32 Ltd (ASX: S32) share price is on the slide on Monday.

At the time of writing, the mining giant's shares are down 2% to $3.72.

This follows the release of the company's fourth-quarter update this morning.

South32 share price falls on Q4 update

The South32 share price is falling on Monday despite the company revealing that it had a strong finish to FY 2023.

According to the release, South32 achieved strong year-on-year growth in aluminium, copper and manganese, setting three annual production records and realising the benefit of its investments in commodities for a low-carbon future.

Group copper equivalent production grew 9% in the fourth quarter, underpinned by a return to stable operations following adverse weather and other temporary impacts in the prior quarter.

South32's aluminium production increased by 3% in the fourth quarter and 14% in FY 2023. The latter reflects Hillside Aluminium achieving record production and the benefits of its investments in low-carbon aluminium capacity at Mozal Aluminium and Brazil Aluminium.

Pleasingly, South32's FY 2023 operating unit costs are expected to be in line with its previously updated guidance.

One negative, though, is that the company has made a non-cash impairment to its Hermosa project. Its FY 2023 financial statements will include a non-cash impairment expense of ~US$1,300 million in relation to the project's Taylor deposit. This reflects delays from the impact of COVID-19, significant dewatering requirements, and current inflationary market conditions.

Management commentary

South32's CEP, Graham Kerr, was pleased with the quarter. He said:

We had a strong finish to the year, with Group copper equivalent production growing 9% in the quarter. Our strong operating results included record annual production at Hillside Aluminium, Australia Manganese and South Africa Manganese. Aluminium production increased by 14% and base metals production by 17% in FY23, supported by our recent investments in commodities critical to a low-carbon future.

Kerr appears optimistic on the future due to the decarbonisation megatrend. He adds:

Looking forward, we are well placed to continue to capitalise on the global energy transition. We expect to deliver further production growth in aluminium and base metals in FY24, and our high-quality development options have the potential to further strengthen our long-term supply of critical minerals.

Motley Fool contributor James Mickleboro 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 Scott Phillips.

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