By Rhiannon Hoyle And Stephen Bell
SYDNEY--South32, the new global miner spun off by BHP Billiton
Ltd., made a subdued debut in trading on the Australian stock
market Monday following one of the largest corporate breakups in
mining history.
Shares in South32 opened at 2.13 Australian dollars (US$1.71)
each on the Australian Securities Exchange toward the lower end of
market expectations, according to brokers. At that price, the
company was valued at roughly A$11.3 billion, or just over US$9
billion.
Expectations for South32's value have varied widely since BHP
said in August it would separate out a suite of mines in
commodities such as aluminum, coal and manganese into a new
company, named after the latitude line along which most of its
assets sit. Uncertainty over the path of metals prices and
currencies has led analysts to tip valuations as high as $15
billion and as low as $7 billion since then.
South32's stock initially rose as high as A$2.22, but gradually
sank throughout the Australian trading day as investors awaited its
market debut in the U.K. and South Africa, where South32 will also
have listings. At one point, shares fell as low as A$2.01, although
the stock trimmed some of those losses late in the Sydney day to
close at A$2.05.
The company's shares then had an unexpectedly positive reception
on a secondary listing in London, where it gained 3.9% to GBP1.08
(US$1.70) on heavy volume, after starting at GBP1.04. The company's
shares also rose 3% in Johannesburg. Sanford C. Bernstein analyst
Paul Gait said the day's gain was partly a reflection of how low
South32's stock started trading, at GBP1.04, which he said was near
the bottom of the range of analyst estimates. "The valuation was
pretty lackluster," he said.
Many U.K. investors are expected to sell their shares in
South32, as it is ineligible for key U.K. market indexes that many
funds there track. Investors received one share in South32 for
every BHP share held.
"I think it will be Thursday or Friday until everything settles
down and we get a real, clear picture on where South32 will trade,"
said Evan Lucas, a Melbourne-based analyst at broker IG. "It's
going to be pretty volatile until then, particularly given there
was such a massive range of expectations ahead of the debut."
Part of BHP's reasoning for the split was that the value of some
of its assets remains hidden within the US$130 billion company it
has become. In a smaller company, run by a dedicated management
team, those assets are expected to have room to shine. Its plan was
overwhelmingly backed by shareholders earlier this month.
BHP saw its share price decline by more than 7% in Australia and
4% in London.
Some analysts worry the prospects for South32's industrial
commodities have deteriorated as China's economy slows.
"It is an exciting story if you believe in risk and the China
story," said Mr. Lucas. "But South32 has some really tricky assets
and needs a lot of factors to go its way."
Still, the listing was the biggest in Australia since
financial-services group AMP Ltd. entered the market in 1998. Chief
Executive Graham Kerr played down any suggestion he might be
disappointed by the debut price.
"I wouldn't say I'm unhappy, but I'm not focused too much on it,
to be honest," Mr. Kerr told reporters at a bell-ringing ceremony
in Perth. He said he was focused on reducing costs and improving
efficiency in the face of weaker commodity prices.
Scott Patterson contributed to this article.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com and Stephen
Bell at stephen.bell@wsj.com
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