Deutsche Bank slashes South32 valuation

BHP Billiton (ASX, NYSE:BHP) plans to give its shareholders one share in the spin-off company called South32 for every BHP share owned and will put the demerger proposal to a shareholder vote on May 6.

The demerger will see BHP, the world's largest mining company, transform from a giant with interests in 41 assets across 13 countries and six continents to "a core portfolio of 19 assets across eight countries and three continents.”

Melbourne-based BHP's proposal does come with fees – the whole spin-off process will result in a once-off cost of around $738 million before tax. Savings for BHP by simplifying its portfolio would be fairly modest at around $100m a year with most of that achieved by end of 2017.

Not everybody is sanguine on the prospects for the spin-off company. The Sydney Morning Herald quotes a new report by Deutsche Bank that says growth and savings opportunities will be limited and South32 chief executive Graham Kerr appears to have his work cut out to raise shareholder value.

Deutsche mining analyst Paul Young cut his valuation of South32 from $US13 billion to $US11.2 billion after reviewing the more than 1500 pages of shareholder documents on the spin-off released by BHP last month.
His valuation for the spin-off falls to $US7 billion when based on current spot prices for commodities.

One bright spot for South32 says the analyst could be to make the most of the current mining asset firesale to make acquisitions – particularly manganese in South Africa and coal in Australia.

Continue reading Sydney Morning Herald and check out BHP's documents below.

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