Rebuffed by Rio Tinto Group (RIO) last year, Glencore Plc (GLEN) will soon have another acquisition target to consider for expanding its mining empire: the company formed from the biggest spinoff in the industry’s history.
BHP Billiton Ltd. (BHP) plans to split off assets including its silver, manganese and aluminum operations to focus on larger businesses such as iron ore. The newly formed company — Perth, Australia-based South32 Ltd. — may appeal to Glencore because it’s being spun off near the bottom of the commodity cycle and it produces many of the same metals as the Swiss giant, said Aviate Global LLP.
South32 could command a market value of about $15 billion when it lists in coming months and earnings are set to surge in the next five years with prices of its materials poised to rise, said Macquarie Group Ltd. As his biggest rivals such as Vale SA and Anglo American Plc hunker down to ride out plunging prices of bulk commodities, Glencore Chief Executive Officer Ivan Glasenberg is looking for undervalued acquisition targets.
“He’s got a free pass into these assets,” Paul Gait, a London-based mining analyst at Sanford C. Bernstein & Co., said by phone. “Looking at it from Ivan’s perspective, I’d be thinking the current downturn isn’t going to last. It never does.”
Representatives for Glencore and Melbourne-based BHP declined to comment.
Big Miner
South32 — named after the line of latitude connecting the company’s Australian and South African operations — will include the Cannington mine in Australia, the world’s largest silver and lead operation, a South African coal business, a nickel mine in Colombia and aluminum assets in three countries. South32 will also be the dominant producer of manganese ore, used to strengthen steel, according to Macquarie estimates.
BHP shareholders will vote on the spinoff plan in May and once approved, South32 shares will trade in Australia, South Africa and the U.K. The separation should be complete by the end of June, CEO Andrew Mackenzie said in a statement today. Amid plunging oil prices, BHP said it’s also cutting the number of rigs in the U.S. by about 40 percent.
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