Why is the South32 (ASX:S32) share price tumbling 5% on Monday?

Here's what's weighing on the ASX 200 resource company's stock today.

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Key points

  • The South32 share price is slumping today, trading 5.3% lower at $3.87
  • The fall follows news the company's battling COVID-19 induced labour shortages and supply chain challenges
  • Partly as a result, it has revised its production guidance for financial year 2022

The South32 Ltd (ASX: S32) share price is tumbling after the company released a report on its performance during the December quarter.

Within the report, the company detailed a labour shortage brought on by COVID-19, as well as bottlenecks in ports, limiting the movement of its products.

It also announced it has downgraded its Australian manganese production guidance for financial year 2022 and plans to update its metallurgical coal outlook in the future.

At the time of writing, the South32 share price is $3.87, 5.38% lower than its previous close.

Let's take a look at how the 3 months ended 31 December unfurled for the metals and mining company.

South32 share price slips on COVID-19 impacts

The South32 share price is in the red this morning after the company announced its global portfolio is being impacted by the pandemic.

Labour availability has been hit by increasing case numbers and workforce restrictions, while port congestion and global freight conditions have been impacting its supply chain.

The movement of the company's inventory, particularly that of its aluminium smelters in Southern Africa, has been slowed by the bottlenecking.

As a result, its aluminium inventory has built during the half year ended 31 December. South32 expects that will continue in the near term and is working to establish alternative shipping solutions and points of dispatch to minimise the impact. It stated:

We expect the working capital build to unwind once we realise the full benefit of our initiatives, and port congestion and general freight tightness is alleviated.

Revised financial year 2022 guidance and production update

The South32 share price is likely also being weighed down by changes to its production guidance.

The company has dropped its expected Australian manganese production for financial year 2022 by 9%. It states that COVID-19 and weather has impacted its production, stopping it from rebuilding its stockpiles before the wet season.

Additionally, works done at Illawarra Metallurgical Coal has resulted in production for the first half falling 23%.

The company plans to provide an update on its metallurgical coal production guidance for both financial year 2022 and 2023 in its first half results.

It said it expects production may be impacted by additional COVID-19 workforce restrictions in New South Wales. Additionally, it believes its operating unit costs for the December 2021 half year will be around 20% above previously given guidance.

However, it's not all bad news from the company today.

South32 upgraded its financial year 2022 production guidance for its Cannington mine by 5%. It's on track to have completely transitioned to truck haulage by the June quarter.

Its South Africa manganese production also increased 7% in the half year ended 31 December.

Over that period, the company realised record aluminium pricing. It also saw a 4% increase in quarterly alumina production while Cerro Matoso's payable nickel production increased 26%.

Finally, over the 3 months ended 31 December, the company's Worsley Alumina continued to operate above nameplate capacity and its Brazil Alumina saw record production.

Right now, the South32 share price is 3% lower than it was at the end of 2021. Though, it's 40% higher than it was this time last year.

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 Bruce Jackson.

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