BHP Billiton breakaway South32 may go shopping

BHP Billiton spin-off South32 is open to making acquisitions once it breaks away from its parent, despite the depressed mood that continues to hang over commodity markets.

That was the message from Graham Kerr, the company’s new CEO, after BHP Billiton shareholders voted unanimously to approve the split.

Kerr told reporters: “If we do go into the M&A space, it will be opportunistic and it will be only where we see value, and we’d have to sell that story very strongly to our shareholders.”

Major mining companies such as BHP Billiton, Rio Tinto and Anglo American have spent the past year aggressively cutting back on spending and placing noncore assets up for sale amid a deep slump in the price of coal, iron ore and base metals.

However, merger and acquisition activity has been slow because of a lack of buyers and the reluctance of sellers to reduce valuations. Last year, an audacious £100-billion (R1.2-trillion) takeover of Rio Tinto by rival Glencore was rejected, while Anglo has failed to off-load some of its assets earmarked for disposal.

South32 will produce alumina, aluminium, coal, manganese, nickel, silver, lead and zinc from mines and smelters in Australia, South America and Africa. The company, which will be listed in London, Australia and South Africa, will be valued at about £6-billion — but some analysts have speculated this could be reduced to as low as half that amid weak demand for mining stocks.

One advantage that South32 will have over its rivals is very little debt.

The new company will go to market with just $674-million (R8-billion) in net debt. It will also have access to an untapped $1.5-billion credit line that will allow it to fund organic growth.

“We’re not overgeared, we’re not overleveraged. We don’t have that problem that a lot of our peers will in the industry,” said Kerr.

Following the shareholder meetings in Perth and London, BHP Billiton said it was expected that South32 shares would start trading on a deferred settlement basis in Sydney, London and Johannesburg on May 18.

Despite the spin-off, BHP Billiton still faces severe headwinds from the decline in iron ore and coal prices over the year.— ©