The return to shareholders represents 4.5% of the company’s market capitalisation of $11 billion.
South32 chairman David Crawford said the announcement further demonstrated the company’s disciplined approach to capital management.
“The combination of our operating leverage, strong balance sheet and simple capital management framework is designed to maximise returns and reward shareholders as financial performance improves,” he said.
South32 declared an interim dividend per share of 3.6c per share with its half-year results in February.
Net cash at December 31 was $859 million and the company had cash and equivalents of $1.9 billion.
At the time, South32 CEO Graham Kerr faced questions over what the company would do with the cash, but he said it wouldn’t be keeping “excess cash” on the balance sheet.
“Our net cash balance continues to build giving us the financial strength and flexibility to invest in our existing operations, pursue opportunities where we can create value and return excess capital to shareholders,” he said today.
“This $500 million capital management program meaningfully increases shareholder returns and follows the recent announcement of our $192 million interim dividend.”
The buy-back will occur over the next 12 months.
RBC Capital Markets analyst Paul Hissey said the announcement was positive, but not entirely unexpected.
“While as part of the on market buy-back program no explicit price level is set, we see the intention to return capital to shareholders as genuine, with the company stating that ‘all alternatives will continue to be assessed to ensure this capital is returned in an efficient manner’ – meaning should management no longer see value in the buyback, it could pursue other means,” he said.
RBC expects South32 to generate excess cash of $850 million to $1.2 billion this year and next.
“We maintain our positive view on S32, particularly on the strength of cash flow generation and net cash balance sheet position,” Hissey said.
South32 shares dropped by 2.2% or A6c to $2.66 this morning. The stock peaked at $3.065 in December.