Out of Aluminium

Research evidence excerpt

Out of Aluminium

nium comparable companies and under

base metal pure plays. This move should allow investors to more efficiently allocate capital

to desired commodity exposures, creating less carries for active long-only ownership. It

also improves the quality of S32's earnings mix, lowering operational leverage, rehabilitation

liabilities, and gearing. The fully franked Alcoa scrip distribution should also help S32 utilise

its franking credit balance, which potentially may have been tied up whilst S32 executed

Hermosa, Sierra Gorda 4th Grinding Line, and potentially Ambler and Cannington Open Cut.

S32's comparable investor universe is now SFR and CSC, which have traditionally traded at

higher multiples.

From here, we now see S32 as a pure-play base metals-focussed company looking at both

organic and inorganic growth. Whilst it has two major projects under way (Hermosa, SG 4th

Grinding Line), three study phase developments (Ambler, Peake, and Cannington Open Cut)

offer a combination of green fields, brown fields, and life extension optionality.

Further rationalisation (divestment of the Mn segment) could also be a catalyst, with S32

implicitly referring to this division as non-core (by omission). Consensus (Visible Alpha) values

this segment at ~US$970M; an implied ~3.0x EV/EBITDA multiple on VA FY27E EBITDA of

US$364M could further boost S32's expected pro forma net cash position US$3.8B (post-Al

divestment) and provide growth flexibility.

We believe a key focus over the near term remains on the delivery of Hermosa to revised

estimates and flawless execution of the 4th Grinding Line project, which was sanctioned

today with a more conservative capex estimate and schedule than we expected. Delivering