South32 Drops 3.3% Today

South32 Limited [ASX:S32] is an Australian mining company that excavates minerals, including aluminium and manganese, at numerous sites worldwide. Until a 2015 split, it was part of BHP Billiton. Since its divorce, the company has done exceptionally, outperforming parent company Billiton each year.

Despite that, today there was a 3.32% fall in South32’s stock price.

Why did this happen to South32’s shares?

Long-term events — primarily the mining boom — have increased optimism and investment in the industry. Unfortunately, recent US-led tariffs have cast doubt on the sustainability of the demand-driven boom.

The two largest economies in the world, America and China, are currently in a row over US perceptions of unfair trade practices and a US$375 billion deficit. President Donald Trump has turned bitter words into action with protectionist tariffs on US$50 billion worth of Chinese goods. China has said it will retaliate.

This could explain the drop in S32 stock. As the mining boom is primarily driven by rising Chinese demand, anything that shaves points off Chinese growth will adversely affect the Australian mining business.

Although Trump’s war of words against China has been ongoing, it is likely being factored into Aussie stock prices only now because the capricious nature of Donald Trump makes discerning policy from bravado difficult.

What’s next for South32?

It is surprising how lightly mining companies are treating recent developments. A quick Google search reveals numerous investment plans underway. Just days ago, South32 settled an agreement to purchase Arizona Mining and their US excavation site.

Recent investments have gone ahead as the industry finally recovers from the crash of the decade prior. Financial situations have improved, and debt levels are manageable.

South32’s Arizona purchase shows it is looking long-term, as the new site can act as a replacement for the ageing Queensland mine. Given the current economic climate, South32 should ensure careful consideration before further irreversible investments.

Regards,

Jason Stevenson,
Resources Analyst, Markets & Money

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Jason Stevenson is Markets & Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options. He originally studied accounting and finance at Curtin University, where he was awarded a first-class honours degree. His professional background stems across high-net-worth, top tier accounting (corporate finance, tax and auditing), and sell-side equities research. Before joining the team at Markets and Money, Jason worked at boutique firms which advised fund managers and high-net-worth clients on where to invest. Whether it’s gold, crude oil, copper or an obscure metal like vanadium, you can rely on an in-depth analysis in Markets and Money. Jason also brings you extensive macro, political and geopolitical analysis from around the world. He leaves no stone unturned when it comes to telling the truth. Jason is also the lead analyst of Gold Stock Trader, a premium service for investors serious about precious metal stocks. Websites and financial e-letters Jason writes for:


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