Why Macquarie says this ASX 200 mining stock could rocket 67% in a year

Macquarie forecasts a big potential rebound for this diversified ASX 200 miner.

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In a research report released over the weekend, Macquarie Group Ltd (ASX: MQG) forecast a big potential turnaround for ASX 200 mining stock South32 Limited (ASX: S32).

Like a lot of global miners, South32 has been struggling amid lacklustre prices for many of the commodities it digs from the ground.

Over the past year, the S&P/ASX 200 Index (ASX: XJO) has gained 5.1%, while South32 shares have tumbled 22.9%. In afternoon trade today, shares are changing hands for $2.70 apiece.

But if the analysts at Macquarie have it right, the ASX 200 mining stock could be set to roar higher from here.

Macquarie has a 12-month price target of $4.50 on South32 shares, or some 66.7% above current levels.

Atop those potential share price gains, South32 also trades on a fully franked 3.7% trailing dividend yield.

Why Macquarie is bullish on the ASX 200 mining stock

South32 came into existence following a demerger of the non-core assets from mining giant BHP Group Ltd (ASX: BHP) in 2015.

South32's mining assets include alumina, aluminium, manganese, nickel, coking coal, silver, zinc, and lead. Macquarie noted that, "The company is highly diversified, and no single asset is critical to company earnings."

The ASX 200 mining stock reported its third-quarter results on 17 April.

Among the results Macquarie didn't like, the broker noted its Cannington mine full-year guidance reduction:

S32 has lowered Cannington FY25 guidance by 10% to 239.2kt ZnEq and lifted unit cost guidance by 11% to US$195/t ore processed due to challenging geotech conditions and wet weather impacting labour availability.

But the good news over the three months to 31 March outweighed the bad.

Commenting on what they liked, Macquarie's analysts noted that both alumina and aluminium production were solid:

Sotuh32 alumina production of 1,265kt was in line with VA and aluminium production of 298kt was a 2% beat versus VA due to strong output from Brazil Aluminium (+6%) and Mozal (+4%).

The broker also pointed to the US$100 million insurance payout the ASX 200 mining stock received during the quarter:

South32 indicated that a further US$100m in external insurance payments were approved in the quarter and that all major structures for the wharf are on track to recommence export sales in 4Q FY 2025.

South32 also reported impressive free cash flow for the three months.

"We estimate Soth32 generated ~US$300m of FCF after US$107m of Hermosa growth capital and adjusting for the US$100m Boddington payment," Macquarie said.

Commenting on the outlook for the ASX 200 mining stock on the day of the quarterly results release, South32 CEO Graham Kerr said, "Our focus on operating discipline, active cost management and a strong balance sheet leaves us well positioned to manage a period of potential uncertainty in global markets."

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