Things aren't looking pretty for South32 Ltd (ASX: S32). The miner's shares are down another 4% today, extending the stock's rapid decline ever since it split away from parent entity BHP Billiton Limited (ASX: BHP).
In a historic move, BHP Billiton spun off its non-core assets into South32 in May this year, essentially reversing the effect of the merger between BHP and Billiton in 2001.
This was designed to allow both management teams to focus on their core activities, whilst also unlocking considerable shareholder value. That certainly hasn't been showcased thus far. BHP Billiton's shares have fallen 28.3% since the divorce became official while South32 has fared even worse.
It's down 37.6% since debuting on the ASX at $2.13 per share, and down 45.7% since it hit a high of $2.45 shortly after. Indeed, South32's game plan was always going to take time to play out – it was never going to make any drastic productivity improvements or cost reductions overnight!
In the long term, I believe these initiatives could certainly have a positive impact on the business, as well as the share price, just as numerous other spin-offs have shown in the past. In the short run however, shareholders of Australia's third-biggest miner could endure more suffering. Given the fears over China's slowing economic growth, commodity prices are likely to continue falling which will have a negative impact on the group's earnings, and that could certainly drag the shares below today's level.
What's more, investors shouldn't rely too heavily on a takeover offer coming forth, either. Glencore was rumoured to be interested in the miner earlier this year but the recent doubts over Glencore's future (and its high level of debt) may have dampened any hopes of that happening anytime soon. With shares currently sitting at $1.33, South32 could be one for your long-term watchlist. For now however, investors may want to hold off from buying.