South32 Shares Testing Support at Key Moving Average

South32 shares (ASX:S32) kicked off the new week with a red day, as markets worked through its September quarter production report, with a notable stumble at its flagship silver-lead-zinc mine weighing. Despite the 2.59% pullback on Monday, and a 15% pullback from highs six weeks ago, the S32 share price gain of 27% YTD remains a significant outperformer on the broader market.

Markets are reacted to a quarterly report that offered genuine positives in copper and manganese while flagging a temporary but meaningful production shortfall at Cannington. The combination of unchanged guidance and a clean balance sheet appears to have limited the downside, although momentum is being tested at the 200 day SMA. It could be a pivotal period for the stock from a technical standpoint, but this was a move on a fundamental update, so let’s start there.

What is driving South32 shares?

The September quarter report was headlined by a 27% quarter-on-quarter decline in zinc equivalent output at the Cannington mine in Queensland, where payable zinc equivalent production fell to 59,200 tonnes. The culprit was a temporary shortage of paste backfill, the material used to fill mined-out underground stopes and allow safe access to adjacent ore panels. With access to higher-grade planned ore delayed, the processing plant was fed lower-grade stockpile material, dragging silver output down 28% quarter-on-quarter, lead down 30%, and zinc down 23%.

Cannington has now completed approximately 20% of its full-year FY27 guidance of 290,000 zinc equivalent tonnes after just the first quarter, a run rate that implies a meaningful acceleration will be required over the remaining three periods. Management has confirmed that upgrades to the paste delivery system are underway and expects mining rates to recover in subsequent quarters, a key reason full-year guidance has been left intact.

The picture at Sierra Gorda, the 45%-owned open-cut copper mine in Chile, was considerably more encouraging, as Copper equivalent output rose 11% quarter-on-quarter to 22,400 tonnes, driven by higher planned ore grades, with payable copper specifically climbing 17% quarter-on-quarter to 18,700 tonnes. The mine also delivered a record quarterly cash distribution to South32 of US$153 million, the single largest contribution to the group’s balance sheet during the period.

It is worth noting that on a year-on-year basis, copper equivalent production was 10% lower, reflecting the natural variability of ore grade sequencing across the mine plan rather than any structural deterioration. South32 also formally commenced execution of the Fourth Grinding Line project at Sierra Gorda during the quarter, a capacity expansion that will lift processing throughput by approximately 25% to around 60 million tonnes per annum, with first ore targeted for FY30 or FY31.

Total manganese output rose 14% quarter-on-quarter, with Australian operations bouncing back 15% to 902,000 wet metric tonnes as the impact of earlier wet weather disruptions faded. South African manganese production increased 11% to 588,000 wet metric tonnes, supported by underground productivity improvements at the Wessels mine. Manganese remains a strategically important commodity for South32 given its role in steel production and emerging battery applications.

On the financial side, net cash grew by US$14 million over the quarter to US$297 million, a solid outcome given that the company simultaneously invested US$197 million into the Hermosa critical minerals project in Arizona and repurchased US$13 million worth of shares, acquiring approximately 4 million shares at an average price of A$5.04 per share. The Hermosa project reached a significant regulatory milestone during the quarter when the US Forest Service issued the Final Mine Plan of Operations, completing the federal FAST-41 permitting process for the Taylor zinc-lead-silver deposit. First production from Taylor remains targeted for the second half of FY28, with total project capital guidance sitting at approximately US$3.3 billion.

The quarter’s most strategically consequential development, however, may be the shareholder vote on October 15, in which 99.18% of votes cast approved the sale of South32’s entire aluminium value chain to Alcoa Corporation for up to US$5.6 billion. The transaction encompasses South32’s 86% stake in Worsley Alumina, its 100% ownership of Hillside Aluminium in South Africa, a 33% interest in the MRN bauxite mine in Brazil, and its Brazil Alumina and Aluminium operations. Completion is expected in the first half of calendar year 2027, subject to regulatory approvals across multiple jurisdictions. The divestment marks a fundamental reshaping of South32’s portfolio, effectively transforming the company into a focused producer of critical transition minerals, with copper, zinc, silver, and manganese at the core of its future earnings base.

Technical momentum test

From a technical standpoint, the stock’s 15% pullback from its high in six weeks has brought it right back to the 200 day SMA at A$4.51. This is a potentially critical point for momentum followers, with the reaction at the rising trend line likely to set the stage for the final leg of 2026. The near term moving averages at the 30 day and 50 have both given way in the past week, and whilst the 200 day is holding for now, it also sits at a support level that has flipped from early year resistance.

South32 enters the final months of the year with a cleaner story than it has carried for some time, alongside a healthy net cash position, yet there remains plenty for both bulls and bears to remain interested here.