The market may be pushing higher this morning, but the South32 Ltd (ASX: S32) share price certainly isn't.
At one stage the mining giant's shares were down as much as 10% to $3.15. They have since rebounded but are still down over 4.5% at $3.34 at the time of writing.
Why have South32's shares plunged lower?
Today's decline appears to be related to a broker note out of the equities desk of Macquarie Group Ltd (ASX: MQG) following the mining company's half-year result release yesterday.
According to the note, the broker has downgraded South32 to an underperform rating and sliced the price target on its shares from $3.70 all the way down to a lowly $3.10.
Although South32's report was in line with its forecasts and a 3 U.S. cents per share special dividend was declared, the broker has looked beyond these positives and has focused on its weak full-year guidance.
And while South32's valuation may be attractive based on current spot prices, its analysts think that the potential for rising unit costs and lower commodity prices is a major risk.
It wasn't the only broker downgrading South32 today unfortunately. A note out of Morgans reveals that its analysts have also downgraded the miner to a reduce rating and cut the price target on its shares to an even lower $2.97.
Like Macquarie's analysts, Morgans appears to have been left disappointed with its production guidance downgrade and the rising costs of its main assets.
Should you buy the dip?
I would suggest investors follow the advice of Macquarie and Morgans by avoiding South32's shares for the time being. Especially when there are a number of quality alternatives in the resources sector such as BHP Billiton Limited (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG) trading at far more attractive prices.
