JOHANNESBURG (miningweekly.com) – Value generation from the assets of South32 in the months ahead of its debut on the Johannesburg Stock Exchange (JSE) is indicative the upside potential of the triple-listed BHP Billiton spin-off company, which saw its shares end up well in the money at the JSE's close on Monday and those of BHP Billiton fall.

The demerged entity’s two years in the making has provided the opportunity to stress test the new regional asset aggregation and integration strategy and prove its efficacy ahead of time, Creamer Media’s Mining Weekly Online can report. (Also watch attached video).

The opening share price of R19.60 a share in Johannesburg saw some fluctuation before settling at R20.24 a share.

In contrast, the price of BHP Billiton shares fell 4.28% on the JSE and 7.26% on the Australian Stock Exchange (ASX).

There are 5.39-billion South32 shares in issue and investors, who received one share in South32 for every BHP Billiton share held, traded 45.7-million shares in Johannesburg on day one.

South32 shares kicked off on the ASX, the location of its main listing, at A$2.13 each, giving the diversified mining company a market capitalisation of A$11.96-billion on launch.

“The valuation appears reasonable as the market digests the listing,” said Investec Securities of the US$9-billion lower-end valuation.

Share price volatility is expected on the London Stock Exchange, location of the third simultaneous listing, owing to certain UK investors having to sell off because of index weightings.

The 27 000-employee, five-country South32 has aluminium, coal, manganese, nickel, silver, lead and zinc assets.

“We’ve already started to see the value coming out of these assets,” South32 president and COO Africa Mike Fraser said of the new company's performance in the last few months, as designated management began aggregating the business support from its assets into its African and Australian regions. (Also watch attached video).

“For the first time we are actually able to operate them as integrated businesses, which we believe will generate a lot of value for our shareholders, firstly by taking out costs but also focusing on driving real reliability and getting the most cash out,” he added.

The company’s attraction to the investor community is expected to become better known as its assets begin being analysed outside of the BHP Billiton fold by the investment community.

All the assets are cash-generative and once all the existing assets are performing to their potential, management intends giving attention to growing the productive capacity of the businesses.

Among the most value accretive opportunities is to convert the extensive resource bases of the various assets into reserves.

South32 has the world’s largest manganese ore business, the largest silver mine, alumina refineries and cost-competitive aluminium smelters.

“We’re very much focused on ensuring that we start to deliver results as soon as possible,” South32 CEO Graham Kerr said at a pre-listing media conference in which Mining Weekly Online took part.

That comes against the background of share prices in the mining sector being comparatively low currently, which was also reflected in the South32 debut price, despite the company offering a strong balance sheet, a dozen well-maintained assets and a good credit rating.

“There’s a great opportunity for us to actually increase the value of these assets,” Kerr said, adding that among the ways that the assets would be run differently to the way they were under the BHP Billiton umbrella would be to reduce their complexity and lower their levels of management.

In a note on South32, London analyst firm Liberum raised three matters which could impact on South32’s aluminium, manganese and coal businesses – a potential reversal of the Indonesian alumina export ban, China continuing to slow imports of coal to protect the domestic industry and negative Chinese year-on-year steel production reducing demand for seaborne manganese.

A sweetener for South Africa of the 98.05% shareholder yes vote for the demerger is the location of a global 200-job shared service centre in Johannesburg, similar to BHP Billiton’s large global service centre in Kuala Lumpur.

Already put through its paces, the centre will deliver information technology, payroll, invoice processing and payment-run services, which Kerr reported was ready to begin operations.

“I have been impressed by how quickly they are coming up the learning curve,” he told Mining Weekly Online.

Also, the black economic-empowerment transaction involving Isizinda Aluminium taking over the Bayside aluminium casthouse, in agreement with the JSE-listed Hulamin, was also on track for June 30 completion and had received competition authority approval.

South32 will also be supplying the coal to South Africa’s State power utility Eskom and has a number of coal projects in the pipeline.

In the last ten years, the commodities in South32 enjoyed an earnings margin – in earnings before interest, taxes, depreciation and amortisation terms – of 34%, through the cycle.