South32 (ASX:S32): Is it the dark horse amongst ASX 200 miners or have cyclones and commodity prices hit it too hard?

South32 (ASX:S32) began life as a spinoff from BHP back in 2015, capitalised at $9bn. In mid-October 2025, it is capped at $14bn – not a bad effort considering spin-off companies can sometimes underperform. Just ask Falcon Minerals (ASX:FAL) and Minerals260 (ASX:260), which came out of Chalice and Liontown respectively.

However, shares have been volatile, well off all time highs seen in 2022 and having taken a hit from certain commodity price fluctuation and jurisdictional risks.

The bottom line about this company is – even with some short-term setbacks this year – it is one to look at. South32 is hardly the first company to face any of those issues. But the key takeaway we want readers to take is that this company has exposure to critical metals that many other companies (particularly large cap miners) lack.

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South32 is different a decade on from its demerger

Just look at how South32’s revenue mix has changed in the last decade. When it demerged, it made nearly half of its revenue from coal and manganese alloys. Today, it makes over 75% of its revenue from base metals including the aluminium value chain. The company also has higher margins and lower emissions.

Its key projects include:

• Worsley Alumina in WA, which S32 owns 86% of. Its expansion has been approved and it is expected to sustain production for at least another decade.
• GEMCO (Groote Eylandt Mining Company) in the NT, which is 60%-owned by South32 and was offline for several months due to damage from Cyclone Megan,
• Cannington, a silver and base metals mine in Queensland,
• Mozal Aluminium in Mozambique, which the company plans to place under care and maintenance due to uncertainty over power supply,
• Cerro Matoso, a nickel/cobalt project in Columbia, which the company is divesting as nickel prices remain in the doldrums; and
• Hermosa, which is a zinc-lead-silver deposit in Arizona that the company made a Final Investment Decision on back in February 2024. First production is expected in the next 3-4 years and will have an initial operating life of 28 years and production of 3Mt by 2031. The project’s NPV is US$686m and the IRR is 12%.

Hermosa is the only advanced mine development project in the United States that could produce manganese and zinc – two federally designated critical minerals. Manganese is a highly underrated battery metal, and zinc is an important metal used to galvanise iron and steel to protect against corrosion. South32 already has exposure to zinc through Cannington, although Hermosa will take the company from being a modest producer to a major producer. As for manganese, South32 supplies 10% of this commodity from its mine in the NT.

You’ll notice that South32 derives a majority of its revenue from aluminium, with operations in Brazil, South Africa and Western Australia. On top of all of this, the company has several greenfield exploration prospects, in Australia and the Americas, some of which it is in earn-in or farm-in agreements with small and mid cap resources companies. These include the Ambler Metals JV with Triology Metals in Alaska; the Jessica copper project in the NT which it is in a farm-in agreement with Encounter Resources, and the Isa Valley Copper/Zinc project.

FY25 was a mixed year, but it could set the company up for future success

We last wrote about South32 in July 2024 and we said FY25 could be the company’s time to shine. From a share price perspective, it wasn’t necessarily and there were some setbacks, but some good signs too. S32’s revenue from FY25 were US$5.98bn revenue from continuing operations (up 7.1%) and a US$318m net profit (vs a loss in FY24). Its EBITDA margin improved and it was free cash flow positive, although it cut its dividend by 16%. The company upped its production of aluminium and copper (5% and 16% respectively), although it was impacted by the adjustment of its portfolio.

South32 divested its Illawarra coal business and received US$100m linked to operational agreements at Worsley. It obtained state and federal environmental approval to extend the life of Worsley. On the flip side, the company was impacted by Cyclone Megan at Groote and the power supply in Mozambique. Management announced that Spouth32 would take a US$372 million impairment and place the Mozal smelter under care and maintenance from 2026 if power issues are unresolved.

The company’s time to shine could be FY26 (but FY27 is more likely)

South32 has not released any announcement since its FY25 results in August but will inevitably give a quarterly update in a matter of days. Obviously, the key will be positive commodity price momentum and a lack of operational delays.

Analysts have a mean target price of A$3.25, a mere 10c premium to the current share price. They expect revenues to be US$6.5bn in FY26. You may recall we noted FY25 revenues were US$5.9bn from continuing operations…although they were US$7.6bn from all operations. It is unclear to what extent consensus includes discontinuing operations; and in any case, the company will take a hit from the ongoing disruptions in Mozambique and the NT. In FY27, revenue is expected to be US$6.3bn, but then increase to US$7bn in FY28, arguably due to Hermosa.

Looking at the EBITDA line, this was US$1.9bn in FY25 and consensus expects US$1.7bn in FY26, but then an increase to $2bn in FY27 and $2.1bn in FY28. Analysts similarly expect a retreat in the NPAT line, but a recovery in FY27. These estimates place the company at 16.3x P/E, 5.4x EV/EBITDA and 1.7x PEG for FY26. But for FY27, these multiples are 9.5x P/E, 4.6x EV/EBITDA and 0.97x PEG. Meanwhile, Rio Tinto has a 10.4x P/E for FY26 and a PEG of…12.5x.

Analyst targets vary from $2.61 per share on one extreme and $4.06 on the other, but there are 14 estimates.

The bad news provides an opportune time to consider South32

Buying the dip is a risky strategy, but one that can pay off in circumstances where setbacks that have caused a decline in the share price are short-term in nature. We think this is the case with South32. If:

• Aluminium prices remain constant or strengthen in the next couple of years,
• recovery at the company’s NT manganese operations don’t take longer than expected, and
• Hermosa progresses on track,

We expect investors will see some good days ahead.