What happened? It's been an extraordinarily tough start for BHP Billiton Limited's (ASX: BHP) spinoff South32 Ltd (ASX: S32). The company's had to contend with record low commodities prices on a number of its products, a falling stock market, and the condemnation, and probably momentum, that comes with being a new listed entity that quickly loses money for investors.
The share price quickly jumped above $2.30 after listing at $2.13, implying a market capitalisation of $12.48 billion, but have just as quickly fallen back to earth- in fact on Wednesday the shares hit a new all-time low of $1.40 during the day, and closed at $1.41. Should we start to consider buying shares in the company yet?
Time to buy or sell?
Before we answer that, here's a recap 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
You might notice that many of these commodities remain in long-term bear markets at, or near, cyclical lows. This is a negative for near-term earnings, and of-course you need to be pretty special to pick the bottom of any bear market, but could be a positive for investors looking to hold for the long, long, long term (I'm thinking 7 to 15 years). For me, it's a gamble to buy today based on future value until we see a more meaningful turnaround in commodity prices, however selling could be a mistake; here's why.
Now What? I think South32 is rapidly becoming a tasty takeover target.
While investing in potential takeover targets is fraught with danger, investors might look at South32 with the view that the current share price represents long-term value for very large investors with very long time frames.
South32's assets are known for being low-cost and long-life, and could easily be incorporated into the operations of a diversified miner with operations in similar locations.
