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South32 Ltd’s Rollercoaster Year: FY24 Volatility and FY25 Outlook

South32 Ltd's Rollercoaster Year FY24 Volatility and FY25 Outlook

South32 Ltd (ASX: S32) shares demonstrated resilience in the face of a tumultuous FY24, maintaining stability despite market conditions and commodity price fluctuations. Starting the year at $3.76 per share, the mining giant saw its stock briefly dip to a low of $2.89 by February before bouncing back to close the fiscal year at $3.66.

The volatility in South32’s stock was primarily driven by fluctuating commodity prices. However, the company, which heavily relies on aluminium and manganese—critical materials for green technologies and electric vehicles—saw a significant boost from a rebound in demand. Aluminium prices, for instance, surged from US$2,170 per tonne in February to US$2,528 per tonne, the highest levels seen since 2018, excluding a brief spike in 2021-2022 during post-COVID economic reopenings.

South32’s April quarterly update brought to light strong production metrics, with aluminium output rising 1% year-over-year and record production at its Hillside Aluminium project. Similarly, manganese production in South Africa increased by 8%, setting a new production record for the quarter. These positive developments instilled confidence in South32’s future performance, helping lift its shares to a six-month high of $3.96 in June.

Looking Ahead: FY25 Outlook of South32

Analysts are optimistic about South32’s prospects for FY25. UBS has upgraded South32 to a buy, setting a price target of $4.15, reflecting a 12% upside potential from current levels. UBS forecasts a substantial increase in earnings, anticipating growth between 13% and 34% over the next three years, driven by expected higher prices for manganese and alumina.

Goldman Sachs also rates South32 a buy, projecting a share price of $4.00 within the next 12 months. The firm predicts South32 will generate up to US$550 million in free cash flow in its full-year results. Macquarie is similarly bullish, assigning a price target of $4.25 per share.

According to CommSec, nine of the 15 brokers covering South32 rate the shares as a buy, while the remaining six suggest holding the stock. This consensus reflects a broadly positive sentiment towards South32’s future performance.

Takeaway

South32’s share price saw significant fluctuations throughout FY24, a characteristic often seen in ASX-listed mining stocks due to their sensitivity to commodity price changes. However, the company’s solid production performance and favourable market conditions have set a positive tone for FY25. Analysts remain bullish, anticipating continued growth and higher share prices. Investors should always consider current market conditions and conduct their due diligence before making investment decisions.

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