On Wednesday night Australian time BHP Billiton Limited (ASX: BHP) shareholders overwhelmingly approved a demerger of some of the company's assets into a new company to be named South32. We've written extensively about the proposal, and I've summarised some of the key points below from a previous article, but investors considering investing in South32 once it lists needs to understand the assets under its control before buying or holding.
Key Facts to Know
Here are some facts BHP shareholders need to know from my colleague's previous article:
- The rationale for the demerger is to unlock shareholder value.
- South32 will become the world's largest producer of manganese ore and operate the world's largest producing silver mine. It will also be the world's 15th largest listed miner by market capitalisation.
- On a pro-forma basis for financial year 2014, South32 had revenue of US$8.3 billion and underlying earnings of US$446 million.
- The expected level of net debt in South32 is US$674 million.
- New shares in South32 will be allocated to BHP shareholders on a one-for-one basis.
- BHP's shares will trade ex-entitlement to South32 from 15 May.
- South32's shares are scheduled to begin trading on the ASX on 2 June.
- South32 will not pay a dividend in the June 30 2015 half.
South32's Assets
Any potential investor in South32, regardless of whether you are an existing BHP shareholder, needs to consider the outlook for South32's assets (ie the minerals it pulls out of the ground). The reason for this is that while South32's assets contributed only $648 million to the BHP's group underlying earnings before interest and tax of $9,226 million in the first half of the 2015 financial year, they will be ALL of the new company's earnings!
Here's a wrap up of South32's asset locations and products:
- Worsely Alumina
- South Africa Alumina
- Mozal Aluminium
- Brazil Aluminium
- South Africa Energy Coal
- Illawarra Metallurgical Coal
- Australia Manganese
- South Africa Manganese
- Carra Matoso Nickel Mine
- Cannington Silver and Lead Mine
Aluminium is South32's largest segment, contributing approximately 30% of last year's earnings and represents the company's biggest and most valuable operations. Analysts have expressed some concerns over the group's heavy exposure to South Africa, which remains an economy and country in transition, and obviously its exposure to global commodities prices that have been exceptionally volatile over the last 12 months.
