An investor seeking out S&P/ASX 200 Index (ASX: XJO) mining stocks has an abundance to choose from. Perhaps one of the more attractive shares, however, is diversified miner South32 Ltd (ASX: S32).

Katana Asset Management portfolio manager and co-founder Romano Sala Tenna reportedly sees value in the $18 billion ASX 200 mining stock.

The South32 share price last traded at $4.06.

The expert has outlined three reasons why the miner could be a buy in a conversation with the Australian Financial Review. Let’s dive in.

3 reasons South32 shares could be worth considering

Valuation

The first thing the expert likes about South32 shares is their valuation.

Sala Tenna said the stock currently trades with a price-to-consensus financial year 2024 earnings ratio (P/E) of around 7 times.

It also boasted an impressive 6.9% dividend yield as of Thursday’s close, having paid out 28 cents per share over the last 12 months. That doesn’t include the 4.4 cent special dividend paid in October.

Of course, snapping up a stock when it trades at an attractive valuation can increase the potential gains on offer for an investor.

Strong balance sheet

Another reason the expert thinks South32 shares could be worth looking at is the company’s “pristine” balance sheet.

The miner ended the first half of financial year 2023 with US$1.56 billion of cash and equivalents and a net debt position of US$298 million.

It also has access to significant liquidity through undrawn credit facilities.

Potential for M&As

That leads into Sala Tenna’s final reason to like South32 shares – its potential for growth through mergers and acquisitions (M&As).

And the expert reckons the company’s balance sheet leaves it in the position to grow through M&As without issuing more shares. As my Fool colleague Mitchell explains with an incredibly relatable analogy, the more shares in a company on offer, the more its earnings per share (EPS) will be diluted:

Like enjoying a bottle of red among friends… if another glass turns up, that means less red going into yours.

But what might South32 look to buy? Sala Tenna said, as per the publication:

We believe that further acquisitions in the copper space make sense and provide diversification and a push deeper into [electric vehicle] metals.

The post Looking to buy an ASX 200 mining stock? Here are 3 reasons to consider South32 shares appeared first on The Motley Fool Australia.

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More reading

• Brokers expect big gains and huge dividends from these ASX 200 mining shares
• Here are the 3 most heavily traded ASX 200 shares on Tuesday
• Stay alert! Expert urges buying this ASX dividend stock as soon as it dips below $4
• Analysts name 2 strong ASX 200 dividend shares to buy
• Invested $4,000 in South32 shares 5 years ago? Here’s how much passive income you’ve earned

Motley Fool contributor Brooke Cooper 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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