Not all coal is equal

Finweek English Edition - - MARKETPLACE HOUSE VIEW - ed­i­to­rial@fin­week.co.za By Mox­ima Gama

Di­ver­si­fied min­ing group South32, which was formed last year af­ter BHP spun off non-core as­sets, has had a good run on the JSE, re­turn­ing 44% to share­hold­ers over the past year. This has made it one of the top­per­form­ing ma­jor di­ver­si­fied min­ers on the ex­change over the pe­riod.

How­ever, the com­pany’s share price took a dip af­ter it an­nounced the sus­pen­sion of un­der­ground op­er­a­tions at the Ap­pin col­liery in Aus­tralia due to safety con­cerns. Ap­pin, which forms part of its broader Illawarra Met­al­lur­gi­cal Coal oper­a­tion and which was ini­tially closed at the end of June, is ex­pected to re­main shut for an ex­tended pe­riod, the com­pany said ear­lier this month.

The miner will pro­vide up­dated pro­duc­tion guid­ance when it re­leases re­sults on 24 Au­gust.

Aus­tralia-head­quar­tered South32 mines met­al­lur­gi­cal coal, which is used in the steel­mak­ing in­dus­try; ther­mal coal, which is used in power sta­tions; alu­minium, man­ganese, nickel, sil­ver, lead and zinc.

Speak­ing at a re­cent brief­ing in Lon­don, CEO Gra­ham Kerr said it is be­com­ing in­creas­ingly dif­fi­cult for listed min­ing com­pa­nies to stay in ther­mal coal due to in­vestor re­sis­tance, and that the group will not be adding to its ther­mal coal op­er­a­tions in South Africa, The Aus­tralian re­ported.

“We still be­lieve in met­al­lur­gi­cal coal. It has a role to play and it cer­tainly doesn’t get the same back­lash from our in­vestors we see in en­ergy coal,” the news­pa­per re­ported Kerr as say­ing. South32 is plan­ning to ex­pand its base metal op­er­a­tions, hope­fully to also in­clude cop­per, in the next five to 10 years, Kerr said.

How to trade it:

South32 has been trad­ing be­tween 2 300c/share and 3 165c/share since Fe­bru­ary. It con­firmed a dou­ble-bot­tom (formed at 2 445c/share) above 2 740c/ share. If South32 con­tin­ues to trade above that level, go long. The up­side tar­get would be at 3 165c/share. Al­ter­na­tively, down­side through 2 445c/share would trig­ger a sell sig­nal, with the down­side ob­jec­tive si­t­u­ated at 2 445c/share and pos­si­bly to key sup­port at 2 300c/share. ■

Last trade ideas

Gra­ham Kerr CEO of South32

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