The South32 Ltd (ASX: S32) share price is trending lower again today as decreased production guidance, high power costs, and weak investor sentiment continue to weigh heavily on the metals and minerals miner.
At the time of writing this afternoon, South32 shares are changing hands at $2.945, down 0.17% over the day. Over the past year, the share price is 18.65% lower. The decline is mostly due to South 32's 30.38% share price crash over a 2.5-week period in late March this year amid commodity price volatility and slow revenue growth.
The share price has recovered some gains. Since it bottomed out at a four-year low of $2.52 on 9 April this year, the share price has risen 16.86%.
Despite the loss, it's not all doom and gloom for the miner. Macquarie Group Ltd (ASX: MQG) continues to maintain its positive stance on the stock.
Here's what the broker has to say.
Macquarie's view on S32 shares
In a recent note to investors, the broker confirmed its outperform rating on South32 shares and placed a $3.40 12-month target price on the stock. This is lower than the broker's latest $3.60 target price and is due to a weaker earnings per share (EPS) outlook.
Despite the drop, the revised price still presents a potential 15.44% upside for the stock over the next 12 months.
Issues at Mozal
South32's Mozal Aluminium operation in Mozambique produces low-carbon aluminium due to its access to hydropower. Mozal's current electricity agreement, primarily sourced from HCB, expires in March 2026.
HCB, majority-owned by the Mozambique government, has faced challenges due to drought conditions, raising concerns about its ability to meet Mozal's needs.
Macquarie notes that South32 has provided an update on Mozal's electricity supply agreement, with both FY 2026 production guidance and FY 2025 impairment risks flagged.
"Despite six years of negotiations with Hidroelectrica de Cahora Bassa (HCB), Eskom, and the Mozambique government, a power supply agreement with an affordable electricity tariff remains unresolved," it said in the note.
"We note Mozal's operation represented ~4% of Mozambique GDP and directly employs ~3,000 employees (including contracts) and indirectly supports 20,000 people in the broader community," Macquarie said.
"We have assumed a continued operation of the Mozal operation but at a higher operating cost to reflect increased electricity charges from Eskom. On our base-case forecast, we expect electricity to represent ~35% of smelting processing costs with HCB, which increases to ~45% with Eskom feed. We also expect an impairment in the FY25 update," it added.
Incorporating higher operating costs at Mozal translates to a 3% EPS cut to the FY 2026E. EPS is reduced by 6-8% for FY 2027E and beyond.
"Despite the valuation downgrade for Mozal, we still see underlying value in the remaining portfolio and remain optimistic S32 can achieve a satisfactory resolution on the power negotiations, albeit at a higher cost," the broker said.
South32 mines and produces commodities, including bauxite, aluminium, copper, silver, lead, zinc, nickel, manganese, and metallurgical coal. Its high diversity means the company has no single asset that is critical to the company's earnings.
