May 17, 2015 / 4:06 AM / 3 years ago

BHP spin-off South32 to test appetite for miners

MELBOURNE (Reuters) - BHP Billiton’s (BHP.AX)(BLT.L) spin-off of South32 debuts on Monday in what is set to be the biggest mining listing globally in four years and a test of whether investors are starting to see value in battered mining shares.

A promotional sign adorns a stage at a BHP Billiton function in central Sydney August 20, 2013. REUTERS/David Gray

Forecasts for South32’s debut price range between A$2.00 and A$3.00 a share. The top end would value the company at A$16 billion ($13 billion), making it Australia’s biggest new listing in 15 years and the biggest mining listing since commodities giant Glencore Plc (GLEN.L) in 2011.

Dealers and sell-side analysts said there was strong interest in the shares at the lower end of the range.

South32, which is being hived off by BHP Billiton to allow it to focus on its core businesses, lands just as global miners have been enjoying a small rebound in their shares.

BHP’s shares are up 10 percent over the past month, Rio Tinto (RIO.AX)(RIO.L) and Glencore Plc (GLEN.L) have risen about 5 percent and Anglo American (AAL.L) is up 13 percent, which could help support the new company’s debut, analysts said.

“There will be support from the guys willing to take a longer term view. Others who are wondering whether we’re at the bottom might take a bit longer,” said Chris Drew, an analyst with RBC Capital Markets in Sydney.

Interest in the company, named after the line of latitude joining its main assets in Australia and South Africa, is expected to be solid as it fills a gap between the mega-miners and minnows, and offers a diverse suite of assets, from aluminum to silver.

“There is appetite for that real good size, mid-tier, just below the BHP’s and Rio’s. For that reason it’ll attract interest,” said Matthew Keane, a resources analyst at Argonaut Securities in Perth.

In a sign of the pick-up in institutional investors’ interest in resources, two strategic shareholders in copper miner Sandfire Resources (SFR.AX) - South Korean steel giant POSCO (005490.KS) and OZ Minerals Ltd (OZL.AX) - managed to sell their stakes to fund managers over the past two months, reaping profits on their investments.

Trading in South32 is tipped to be volatile in the first few days as UK institutions who cannot hold the stock because it won’t be included in FTSE indexes may be forced to sell.

“London shareholders have been talking to Australian brokers about facilitating sales,” said one analyst, who estimates South32 is worth A$2.30 a share.

Investors counting on South32 becoming a takeover target may be disappointed, bankers and fund managers said, as the company, likely to be worth at least A$10 billion, would be too big a bite for most industry players.

“In the near term it’s unlikely to be a takeover target unless it gets down to a bargain basement price. It’s a big number. It’s not a trivial amount of money,” said Brenton Saunders, an analyst at BT Investment Management.

($1 = 1.2405 Australian dollars)

Reporting by Sonali Paul; Editing by Richard Pullin

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