South32 share price drops as profits slump 62%

Investors are not taking too kindly to South32's earnings today.

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The South32 Ltd (ASX: S32) share price is falling today after the ASX 200 mining giant reported its latest earnings covering the full 2023 financial year.

Yesterday, South32 shares closed at $3.75. But the miner opened at $3.63 a share this morning and is down 2.13% at $3.67 at the time of writing.

South32 share price falls on lacklustre full-year results

  • Revenues of US$7,429 million, down 20% from FY22's US$9,269 million
  • Underlying earnings of US$916 million, down 64.8% from FY22's US$2,602 million
  • Underlying profit before tax of US$1,417 million, down 62.85% from FY22's US$3,814 million
  • Final dividend of 3.1 US cents per share, fully franked, declared, in addition to US$50 million in new share buybacks
  • Statutory loss after tax of US$173 million, down from a profit of US$2,669 million in FY22.
  • Group operating margin of 29.4%, down from FY22's 47%

South32's statutory loss of US$173 million was heavily impacted by a US$1,300 million non-cash impairment of the Hermosa Taylor zinc, lead and silver deposit in the United States.

What else happened in FY23?

While South32 saw some disappointing numbers on its bottom line thanks to lower commodity prices, the company also revealed that it had achieved 15% production growth in aluminium and base metals.

Over the 2023 financial year, 50% of South32's underlying revenue came from the aluminium value chain. 18% came from metallurgical coal, followed by 11% from manganese, 8% from nickel, 7% from copper and the remaining 6% from zinc, lead and silver.

However, a collapse in aluminium and alumina margins dented the group's overall operating margins. While aluminium and alumina contributed 50% to group revenues, combined they only made up 19% of South32's underlying earnings base.

Meanwhile, South32's final dividend for FY23 will be 3.2 US cents per share, taking the FY23 total to 8.1 US cents per share. That's a 64% drop from the 22.7 US cents per share investors received over FY22.

What did South32's management say?

Here's some of what South32 CEO Graham Kerr had to say about these results:

During the year, we delivered strong production growth in commodities that are critical for a low-carbon future. We set three annual production records and realised the benefit of our recent portfolio improvements, increasing aluminium production by 14 per cent, base metals by 17 per cent and manganese by 4 per cent…

Reflecting our disciplined approach to capital management, the Board has also resolved to further expand our capital management program by US$50 million to US$2.4 billion, leaving US$133 million to be returned by 1 March 2024...

We continue to execute our strategy and our portfolio is leveraged to the increasing commodity demand required for the global energy transition

What's next for the miner?

South32 has provided a range of guidance for the production of its major commodities in the 2024 financial year. The miner is expecting higher volumes of aluminium, alumina, copper and zinc, but a fall in nickel, manganese ore and coal volumes this financial year:

A planned increase in production volumes across the majority of our operations in FY24 and our ongoing focus on controllable cost initiatives is expected to partly offset ongoing industry-wide inflationary pressures.

South32 share price snapshot

It's been a rough year for South32 shares this year so far. In 2023 to date, this ASX 200 mining share remains down by 6.6%, compared to a gain of 2.25% for the S&P/ASX 200 Index (ASX: XJO). The South32 share price is also down 13% over the past 12 months, as you can see below:

Motley Fool contributor Sebastian Bowen 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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