Why is the South32 share price tanking on Tuesday?

It’s been another horror morning for ASX shares and the S&P/ASX 200 Index (ASX: XJO) so far this Tuesday. At the time of writing, the ASX 200 has given up another 0.48% and is back to around 7,015 points. But let’s check out what the South32 Ltd (ASX: S32) share price is doing.

South32 shares have had a rather strange day of trading thus far. The diversified miner has spent time in both positive and negative territory this morning. That comes after it closed at $4.18 a share yesterday and opened at the same this morning. At present, South32 has dropped into red territory again, down 0.48% at $4.16 a share.

Coal project to wither on the vine

We did see South32 release some non-price-sensitive news this morning. The company announced that “we will not proceed with an investment in the Dendrobium Next Domain (DND) project at Illawarra Metallurgical Coal following our consideration of recently completed study work and extensive analysis of alternatives”.

Here’s some of what South32 CEO Graham Kerr said on this decision:

Our decision today follows an extensive analysis of the alternatives for Dendrobium together with the anticipated returns from the up-front capital investment which would be required. Over the past 18 months we have made significant progress actively reshaping our portfolio and this decision increases our capacity to direct capital towards other opportunities.

This includes our world class development options in North America that have the potential to underpin a significant growth profile to produce metals critical to a low carbon future, servicing strategically important supply chains.

In terms of the future of the Dendrobium project, South32 said that “we will now focus on continuing to optimise Dendrobium and the broader Illawarra Metallurgical Coal complex to extend the mine life within approved domains”.

So it’s out with coal for South32, and in with “other opportunities”, it seems.

South32 share price takes a hit on Tuesday

But apparently, this announcement isn’t enough to save South32 from the market’s bad mood this Tuesday. That stands in contrast to some other ASX mining shares. Take BHP Group Ltd (ASX: BHP). BHP shares have risen by a healthy 1.44% so far today. Fortescue Metals Group Limited (ASX: FMG) shares are also in the green. But Rio Tinto Limited (ASX: RIO) has gone the same way as South32.

But no doubt some investors are still eyeing off the miner. As my Fool colleague Tony covered this morning, Sequoia senior wealth manager Peter Day is one expert investor that is bullish on South32 right now. He stated that:

We’re expecting solid full year results to be driven by a strong performance from its coal division [when the company reports on Thursday this week]… On our forecasts, South32 is expected to generate strong cash flows in the near term, supporting additional shareholder returns and growth.

At the current South32 share price, this ASX 200 mining share has a market capitalisation of $19.39 billion. That gives the company a dividend yield of 4.01%.

The post Why is the South32 share price tanking on Tuesday? appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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