'Skinny' South32 disappoints on debut
Shares in BHP Billiton (NYSE:BHP, LON:BHP, ASX:BHP) fell sharply on Monday after the world's top mining company's spin-off made a lukewarm market debut.
At the end of the first day's trading on the Australian Stock Exchange, South32 was value at $9 billion (A$11.3 billion), towards the low end of expectations of a range between $7 billion and as much as $13 billion.
It was the biggest mining listing in the history of the ASX and the company also trades on the Johannesburg Stock Exchange and the FTSE in London.
The company has its admirers like Gaurav Sodhi of Intelligent Investor who believes South32 is definitely a takeover target and thanks to a strong balance sheet is also capable of making acquisitions. On the downside, Sohdi describes South32's reserves as "skinny", more a function of BHP's neglect rather than geological factors.
Based in Perth and named after the 32nd parallel south line of latitude that links its business centres in Perth and Johannesburg, South32's assets generated combined revenue of $8.3 billion last year.
American Depository Receipts of BHP trading in New York fell mroe than 6% on Monday, roughly in line with its reduced portfolio of assets. BHP's market capitalization is now $126 billion with revenues of $67 billion per year.
Melbourne-based BHP's demerger came with hefty fees – the whole spin-off process resulted in a once-off cost of around $730 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.
South32 produces aluminum, coal, manganese, nickel, silver, lead and zinc from mines and smelters in Australia, Brazil, Colombia, South Africa and Mozambique.