China, the world’s biggest metals buyer, will account for just 11% of sales for South32, whereas parent BHP Billiton and its competitor, Rio Tinto Group, rely on China to create more than a third of their revenue.
With less dependence on China and no iron ore mines, the Perth company, which “demerged” from BHP, offers a new proposition to producers feeding Asia’s hunger for steelmaking, according to Aberdeen Asset Management.
Since 2010, growth in China has slowed and steel consumption will probably decline this year, says the China Iron and Steel Association.
South32, the world’s biggest producer of manganese ore and silver, starts trading on May 18 in Australia, Britain and South Africa. Its market value is $12-billion. It includes South African coal mines and a Colombian nickel operation.
“The commodities mix is less exposed to the Chinese economic cycle,” said Michael McCarthy, chief strategist at Sydney’s CMC Markets.
Another potential plus for South32 is India, said Paul Bloxham, HSBC Holdings’s chief Australia economist.
India, where Prime Minister Narendra Modi seeks to replace slums with 20-million homes, can offer potential demand growth, according to Bloxham.
Said chief executive elect, Graham Kerr: “The South32 portfolio offers compelling diversification by geography, commodity and customer. No one country accounts for more than 12% of revenue by location of customer.”
Nations in Southern Africa will be South32’s biggest source of revenue, accounting for 12% in fiscal 2014. Australia would account for 9% of revenue and Japan for 8%. South32 would have revenue of $8.3-billion over the period, according to the filing. South32’s “weaker commodity mix” and the price rout for some of its products risks eroding shareholder value, which last month cut its valuation by $2.3-billion from $14.3-billion, on lower commodity prices. The company’s exposure to Southern Africa means greater volatility than BHP. – © Bloomberg