South32 Ltd Drops 4.9% on Coal Update

South32 Ltd [ASX:S32] dropped 4.9% this morning to a low of $2.58 per share.

What happened to ASX:S32?

This morning, S32 released an Illawarra Metallurgical coal update. The company said their Illawarra Metallurgical coal production would be 10% below their FY17 guidance of 7.9 million tonnes, due to a gas leak.

On 7 May, S32 identified elevated gas levels at Appin, Area 7. Workers were evacuated from the site and the NSW Department of Planning and Environment was notified.

Production at Areas 7 and 9, which form part of the broader Illawarra Metallurgical coal operation, has been suspended until investigations are completed.

Looking to the future for South32 Ltd

This set back is likely to only be temporary. Production levels 10% lower won’t mean much in the long-run. But the price of coal, bauxite and manganese will, however, as these are the assets S32 makes their margins from.

The stock is currently trading at a price-to-earnings ratio of 13.8-times, which is lower than the industry average of 22.6-times, according to Reuters.

Regards,

Härje Ronngard,

Junior Analyst, Money Morning

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