Not all coal is equal
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