The journey south: South32 open to acquisitions after BHP Billiton breakaway

By Morag MacKinnon

PERTH, May 6 (Reuters) – Newly formed mining and metals group South32 is open to acquisitions once it breaks from BHP Billiton , its CEO-elect Graham Kerr said on Wednesday.

Iron ore is loaded into a pile at Fortescue Metals Cloudbreak iron ore mine, about 250km (155 miles) southeast of Port Hedland in Western Australia state, July 25, 2011. REUTERS/Morag MacKinnon
Iron ore mining. REUTERS/Morag MacKinnon

BHP shareholders are expected to approve the spin-off, which includes some of the global miner’s smaller assets, at meetings in Perth and London on Wednesday, paving the way toward a listing on May 18.

Named after the 32nd parallel south line of latitude that links its business centres in Perth and Johannesburg, South32 will produce alumina, aluminium, coal, manganese, nickel, silver, lead and zinc from mines and smelters in Australia, Brazil, Colombia, South Africa and Mozambique.

Those assets, long overshadowed by BHP’s much larger iron ore, petroleum, copper and coal businesses, generated underlying earnings of $446 million on revenue of $8.3 billion last year.

“If you compare them across to Anglo, Glencore, I think you’d find our assets absolutely stack up beautifully,” Kerr said referring to bigger rivals Anglo American Plc and Glencore Plc.

The new company will have the added advantage of carrying just $674 million in net debt.

“We’re not over-geared, we’re not over-leveraged. We don’t have that problem that a lot of our peers will in the industry,” Kerr told reporters ahead of the vote.

He said the company would consider acquisitions of any commodity, other than gold, where South32 could add value.

“If we do go into the M&A space it will be opportunistic and it will be only where we see value, and we’d have to sell that story very strongly to our shareholders.”

Forecasts on how much South32 will be valued at have dropped to between $5 billion and $10 billion since the spin-off was announced last year.

South32 will be the world’s top manganese producer and Kerr said if the company thought it could boost prices by cutting output it would consider doing so.