Striking out alone: South32, the newest kid on the South African mining block, is looking to succeed where others have faltered.

Author:Thomas, David
Position:Mining
 
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After a recent period dominated by wildcat strikes, wage disputes and erratic power supply--all against a backdrop of weak commodity prices--it might seem an unfavourable time to launch a new mining company with exposure to South Africa

But that's the exact challenge being taken on by South32, a diversified miner newly carved out of the mining giant BHP Billiton. Following shareholder approval in May, the firm will go it alone in a bid to extract value from a collection of mostly South African and Australian assets dotted along the 32nd parallel.

Despite enthusiastic support among BHP shareholders to cast off the assets, analysts believe that Soutiras potential as a standalone company could unlock a rich seam of value and inject some much-needed life into a moribund African mining market.

"To me, the excitement around South32 is the pretty unique commodity mix," says Hanre Rossouw, portfolio manager and head of resources for emerging and frontier markets at Investec Asset Management.

"You've got the birth of a new mid-cap [middle-capitalisation] mining company, which actually there's been very little of for a while. A diversified company gives you a better ability to negotiate with governments and manage risk."

Southern Africa will be home to 29% of Soutine's assets, a motley collection of coal, manganese and aluminium facilities that failed to bed in at BHP following its mega-merger with South African miner Billiton in 2001. 59% of the business will be based in Australia, with a further 12% housed in South America, according to an investor roadshow presentation.

Almost all of Soutins African assets are based in South Africa and are thus exposed to the country's combustible mix of union activism, policy uncertainty and cost inflation.

But it is hoped that the coal business, buoyed by a strong export market, will be able to navigate the unique challenges ahead.

"I would definitely state that from an export point of view, the coal mines are top-tier assets in South Africa, and there are definitely opportunities for them to continue to be competitive in that space," says Brent Spalding, a coal analyst at mining consultancy Wood Mackenzie.

Spalding points to the extensive export capacity at Richards Bay, the KwaZulu-Natal port conveniently located for Soutins Mpumalanga coal mines, and estimates that Soutins facilities in that region could contribute up to 20% of South Africa's total coal exports per annum.

Power play

South32 could also profit...

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