BHP Spinoff’s Tailspin Is Dream for X2’s Mick Davis: Real M&A – by Brett Foley, Firat Kayakiran and James Paton (Bloomberg News – April 20, 2015)

The plunging value of BHP Billiton Ltd.’s planned mining spinoff could hardly be better timed for the man who’s thinking of buying it.

Weeks from listing, the valuation of the new company, called South32, has plunged by almost half to as little as $7 billion, based on current prices for its products including alumina, manganese and nickel, Deutsche Bank AG estimated this month. That’s a gift for Mick Davis and his X2 Resources fund, which is weighing an eventual bid for South32, according to people familiar with his plans.

Davis, the former head of mining giant Xstrata Plc, has an untapped $5.6 billion fund that could be bolstered with debt to swallow a larger business. Amid the worst commodity slump in half a decade, South32 is still a target, with some analysts expecting its earnings to rebound when prices recover.

“They are good assets in challenged industries,” said Paul Phillips, a Melbourne-based analyst with Perennial Investment Partners Ltd., which manages about A$18.5 billion ($14 billion) of assets. “They have a lot of attractive features.”

BHP is carving off the business to focus on a smaller group of commodities and South32 is set to start trading May 18 in Australia, South Africa and the U.K. The newly formed company will include an Australian mine that’s the world’s largest silver and lead operation, a nickel mine in Colombia and aluminum assets in three countries.

Buying Opportunity

Davis offered BHP about $10 billion for most of the South32 assets last year, people familiar with the matter said, declining to be named because that approach wasn’t made public. Now he is considering making a bid after South32 lists, as long as the company’s valuation is less than $12 billion, the people said.

BHP rose 2.5 percent to 1,481.50 pence at 3:22 p.m. in London. The shares declined 0.5 percent to A$29.82 at the close in Sydney, valuing the world’s largest mining company at A$156.1 billion. A spokeswoman for BHP in Melbourne declined to comment, as did a representative for London-based X2.

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