South32 listing trips BHP shares
BHP BILLITON shares fell as much as 6.6 percent on the JSE yesterday after the group spun off some of its assets into a new listed entity called South32.
South32’s secondary listing on the JSE and Australian Stock Exchanges yesterday marked the beginning of a new era for the company that will house a third of BHP Billiton’s former operations including South Africa coal and manganese mines, as well aluminium smelters based in Richards Bay and Mozambique.
BHP Billiton shares on the JSE fell by as much as 6.6 percent to R266.05, its lowest level since April 21, before recovering to close 4.21 percent down at R273.01.
“From day one, they sit very comfortably in the cost curve and they’ve been cash generative through the cycle,” South32 chief executive Graham Kerr said yesterday in a Bloomberg Television interview.
The new company missed analyst estimates on its Sydney trading debut with investors valuing it at about $9.1 billion (R106.9bn) amid concern for its growth potential. South32’s market value was below the $11.2bn median estimate of seven forecasts compiled by Bloomberg.
However, the debut valuation confirmed the Perth-based company as mining’s biggest spin-off in almost a decade.
The group is the world’s biggest manganese ore producer and operator of the largest silver mine.
On the JSE, South32 traded between a low of R18.97 and an intraday high and close of R20.24, which valued the company at R107 billion.
Troy Bradey, an analyst at NOAH Capital Markets, said the stock listed below the market expectation of between R20 and R30. “We expected downward pressure on the listing price because not all BHP shareholders wanted South32.”
BHP Billiton, the world’s biggest mineral producer, unbundled 12 assets into South32 as it sought to focus on its most profitable iron ore, coal, copper and petroleum operations.
The listing follows a 98 percent vote by shareholders in favour of the demerger of BHP Billiton’s shorter life assets in order to simplify its portfolio.
South32 was examining expansion options at its South African thermal coal unit and its manganese and silver operations, Kerr said.
Limited growth
Jefferies Group said the company had limited organic growth potential and it needed to consider expansion projects and acquisitions.
“Today is the beginning of a journey. It is an important day. Here we have high quality cash generating assets and we plan to run them differently,” Kerr said in a teleconference from Australia.
South32’s listing comes at a time when the largest mining houses are reviewing their portfolios and attempting to cut costs after a tumble in commodity prices sparked by rising output.
Kerr called for regulatory certainty as the Chamber of Mines has challenged the Department of Mineral Resources’ final mining charter report.
South32 has a primary listing in London, and it is headquartered in Perth, Australia with a regional head office and global shared services centre in Johannesburg.
While some investors see the company as a potential takeover target, some analysts and fund managers say that is unlikely, given its size.
“They are fairly large for most guys. There are not too many people who have that kind of cash,” Rohan Walsh, a portfolio manager at Karara Capital, said.
Mick Davis, the former boss of Xstrata, previously made an offer for most of South32’s assets but was turned down.
His firm, X2, which has raised $5.6bn in capital, may now be in a prime position to swoop if South32’s shares slide.
But he would have to borrow about $10bn to be able to snare South32, including a premium.
“That’s a big, risky bet,” Walsh said.
South32, named after the line of latitude joining its main assets in Australia and South Africa, fills a gap between the mega mining houses and minnows, and offers diverse assets from aluminium to silver.