South32 will buy back $500m of its shares

AUSTRALIAN mining company South32 has said that it would buy back $500 million (R6.22 billion) worth of shares from shareholders in a buyback scheme.

South32 yesterday said the shares would be equivalent to 4.5 percent of the company’s current market capitalisation.

It said it believed that the company was undervalued.

The decision did not surprise the market as the company gave an early indication of the buy back during the half-year results presentation in February.

The mining company said at the time that it would not wait for the financial year end to execute potential cash returns.

It said its capital management programme, which complements the group’s dividend policy, would initially take the form of an on-market share buy-back in Australia.

“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,” chief executive Graham Kerr said yesterday.

“This $500m capital management programme meaningfully increases shareholder returns and follows the recent announcement of our $192m interim dividend.”

The diversified miner said the capital management programme was expected to be completed over a 12 month period, and that all alternatives would continue to be assessed to ensure that the capital was returned in an efficient manner. South32 is a base metal and coal mining company which was spun out of BHP Billiton in May 2015.

The diversified miner last year announced its first acquisition since demerging from BHP Billiton by spending $200m on US Peabody Energy’s Metropolitan mine and its 16.67 percent stake in the Port Kembla coal terminal, both in New South Wales. The company is listed on the Australian Securities Exchange with secondary listings in the JSE. Undervalued The buy-back option increases the proportion of earnings distributed to shareholders who want to remain exposed to the stock for a longer period while also providing a return especially if the share is considered undervalued.

Shiraaz Abdulla, an investment analyst at Sanlam Private Wealth said earnings per share would increase as the company would purchase its own shares in the open market.

“By choosing to buy back shares the company is indicating that it believes its shares are undervalued.” Abdulla said that the company had excess cash on its balance sheet after a commodity price rally in 2016.

South32 shares rose marginally by 0.08 percent on the JSE yesterday to close at R25.82.