Kerr calls for policy certainty as South32 debuts

[miningmx.com] – SOUTH32 identified policy certainty as a key requirement ahead of investment in South Africa but said its structure would help it to improve relations with the country’s government.

“Like anyone that is operating in South Africa, we are looking for a stable jurisdiction,” said Graham Kerr, CEO of South32. “We are looking to make long term investments and to do that we need certainty.”

Kerr’s comments come amid a crisis in relations between the South African mining sector and the government which last week published its interpretation of how companies had fared in meeting the targets set down in the mining charter.

Its findings were of massive under-performance – an outcome disputed by the Chamber of Mines which went to unusual lengths last week to express its displeasure saying mines minister, Ngoako Ramatlhodi had reneged on an agreement to keep the figures confidential until the matter was heard in court.

Said Kerr: “At South32, we believe in what the government is trying to do; we are absolutely behind that in every single way,” he said. He added that the group’s regional management structure would help it improve government relations.

“By Mike [Fraser, president and COO of South32’s Africa assets] being the person in charge, we are in a much better position than historically [to liaise with government] and at the moment we are having that kind of discussion.

“Having that discussion is important but having certainty is more important,” Kerr added. He was commenting ahead of the secondary listing of South32 on the Johannesburg Stock Exchange.

The company had earlier taken a primary listing in Perth where it opened at A$2,14/share before trading up to A$2.20/share. In Johannesburg, the share traded at R19.79 whilst BHP Billiton shares were 5% weaker or some R14,52/share lower.

In terms of the demerger, BHP Billiton shareholders would receive one South32 share for each share held. Overall, South32 was valued at about $8.6bn which was some way off the $10bn to $12bn estimated last year.

In a statement to the press, Kerr earlier said South32 would “… start life with a strong balance sheet, along with high quality, well maintained, cash generative assets and highly talented people”.

A strategic imperative for the company was to extend the life of its mine reserves including the Klipspruit and Khutala coal mines in South Africa’s Mpumalanga province. Kerr also alluded to possible restructuring.

“The regional model is an opportunity to get more out of the existing assets especially in how we run them. We will take out some of complexity … and levels of management and increase the value. That is the primary goal,” he said.

SP Angel, a stockbrokerage in London, said South32 was listing into the most challenging environment it had seen in a decade. “But, we love the idea of South32 and see this as a great opportunity for its management to prove the unrealised value in these non-core assets,” it said.

Said Investec Securities: “The market valuation implies that South32 is being priced somewhere around 10-11 times our forward FY16-17 earnings estimates, which appears reasonable as the market digests the listing”.