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.
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