South32 (ASX:S32) Could Be 15% Undervalued As Hermosa Approval Sharpens The Debate
Investor interest in South32 (ASX:S32) has picked up after US regulators approved the company’s A$4.7b Hermosa critical minerals project in Arizona, a key step for this large scale development.
See our latest analysis for South32.
South32’s latest A$4.02 share price comes after a 5.24% 1 day share price return, even though the 30 day share price return is down 10.27% and the 90 day share price return is down 13.17%. Meanwhile, the 1 year total shareholder return of 32.83% and 5 year total shareholder return of 64.98% indicate that longer term holders have seen stronger overall outcomes, suggesting recent momentum has softened despite interest around Hermosa and the Sierra Gorda expansion, as well as ongoing portfolio changes including the planned asset sale to Alcoa and the CEO transition to Matthew Daley.
If Hermosa’s approval has you looking more broadly at copper opportunities, it could be a good time to scan the 8 top copper producer stocks.
With South32’s share price lifting on Hermosa’s approval but still sitting below some valuation markers, the question now is whether the recent move has already captured most of the upside or if investors are still being paid to wait.
Most Popular Narrative: 15% Undervalued
At A$4.02, South32 sits below the most widely followed narrative fair value of A$4.72, which frames Hermosa and the broader portfolio shift as the key swing factors behind that gap.
Large scale investment and progress in copper and base metals growth projects (Hermosa, expanded Sierra Gorda capacity) position South32 to benefit from rising demand for metals critical in renewables, electric vehicles, and global decarbonization, supporting revenue and future earnings growth.
Curious what sits underneath that A$4.72 figure? The narrative leans heavily on expectations of faster earnings growth, higher margins and a richer future profit multiple than many investors might anticipate.
Result: Fair Value of A$4.72 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, South32’s story could change quickly if energy supply issues hit key aluminium smelters, or if capital costs at Hermosa and Sierra Gorda run well ahead of current plans.
Find out about the key risks to this South32 narrative.
Another View on South32’s Valuation
The earlier A$4.72 fair value for South32 leans on growth forecasts and analyst targets. A very different picture appears when looking at today’s earnings multiples, with the stock on a P/E of 31.7x versus 11x for the Australian Metals and Mining industry, 26.6x for peers, and a 22.6x fair ratio, which points to richer pricing and higher valuation risk if earnings do not catch up quickly.
See what the numbers say about this price — find out in our valuation breakdown.
Next Steps
Mixed messages on South32 so far, right? If you want to move quickly and form your own view, start by weighing the 3 key rewards and 1 important warning sign
Looking for more investment ideas beyond South32?
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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