South32 Debuts in Australia at A$11.3 Billion -- 2nd Update

By Rhiannon Hoyle And Stephen Bell 

SYDNEY--South32, the new global miner spun off by BHP Billiton Ltd., made a subdued debut in trading on the Australian stock market Monday following one of the largest corporate breakups in mining history.

Shares in South32 opened at 2.13 Australian dollars (US$1.71) each on the Australian Securities Exchange toward the lower end of market expectations, according to brokers. At that price, the company was valued at roughly A$11.3 billion, or just over US$9 billion.

Expectations for South32's value have varied widely since BHP said in August it would separate out a suite of mines in commodities such as aluminum, coal and manganese into a new company, named after the latitude line along which most of its assets sit. Uncertainty over the path of metals prices and currencies has led analysts to tip valuations as high as $15 billion and as low as $7 billion since then.

South32's stock initially rose as high as A$2.22, but gradually sank throughout the Australian trading day as investors awaited its market debut in the U.K. and South Africa, where South32 will also have listings. At one point, shares fell as low as A$2.01, although the stock trimmed some of those losses late in the Sydney day to close at A$2.05.

The company's shares then had an unexpectedly positive reception on a secondary listing in London, where it gained 3.9% to GBP1.08 (US$1.70) on heavy volume, after starting at GBP1.04. The company's shares also rose 3% in Johannesburg. Sanford C. Bernstein analyst Paul Gait said the day's gain was partly a reflection of how low South32's stock started trading, at GBP1.04, which he said was near the bottom of the range of analyst estimates. "The valuation was pretty lackluster," he said.

Many U.K. investors are expected to sell their shares in South32, as it is ineligible for key U.K. market indexes that many funds there track. Investors received one share in South32 for every BHP share held.

"I think it will be Thursday or Friday until everything settles down and we get a real, clear picture on where South32 will trade," said Evan Lucas, a Melbourne-based analyst at broker IG. "It's going to be pretty volatile until then, particularly given there was such a massive range of expectations ahead of the debut."

Part of BHP's reasoning for the split was that the value of some of its assets remains hidden within the US$130 billion company it has become. In a smaller company, run by a dedicated management team, those assets are expected to have room to shine. Its plan was overwhelmingly backed by shareholders earlier this month.

BHP saw its share price decline by more than 7% in Australia and 4% in London.

Some analysts worry the prospects for South32's industrial commodities have deteriorated as China's economy slows.

"It is an exciting story if you believe in risk and the China story," said Mr. Lucas. "But South32 has some really tricky assets and needs a lot of factors to go its way."

Still, the listing was the biggest in Australia since financial-services group AMP Ltd. entered the market in 1998. Chief Executive Graham Kerr played down any suggestion he might be disappointed by the debut price.

"I wouldn't say I'm unhappy, but I'm not focused too much on it, to be honest," Mr. Kerr told reporters at a bell-ringing ceremony in Perth. He said he was focused on reducing costs and improving efficiency in the face of weaker commodity prices.

Scott Patterson contributed to this article.

Write to Rhiannon Hoyle at [e-mail] and Stephen Bell at [e-mail]

Access Investor Kit for AMP Ltd.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=AU000000AMP6

Access Investor Kit for BHP Billiton Plc

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=GB0000566504

Access Investor Kit for BHP Billiton Plc

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US05545E2090

Subscribe to WSJ: http://online.wsj.com?mod=djnwires