South32 has continued its downward progression since listing, falling by a fifth since May, reaching a new low.
Its movements on the ASX mirror those on the JSE, where it has managed to fall 10.3 per cent in the space of a single week.
The news also comes as Blackrock pulls out of the miner, shifting its stakeholding down below the five per cent threshold for reportable holdings.
According to NOAH Capital Markets Tory Brady, the miner is simply a victim of the ongoing contraction seen in mining stocks.
“It’s important to keep in mind that the resources sector as a whole is in trouble because of the slowdown in China,” Brady said.
“It also doesn’t help that some South32 commodities – manganese, coal, aluminium – have all recently been on a downward trend.”
Aluminium has been one of the weaker components for the miner, with Rio Tinto’s renewed interest in divesting from its aluminium assets indicative of a willingness of miners to exit the sector.
With this exposure apparent from the get-go, it was no surprise to the market when Deutsche Bank slashed its valuation of the demerged company early on.
Prior to its listing Deutsche mining analyst Paul Young said when South32 lists on the ASX it was to be valued at $US11.2 billion instead of the expected $US13 billion.
Young said after reviewing the company’s assets, it had reduced the value of them by $US3.5bn to $US13.8bn.
The downgrades come as the bank predicts weaker prices for manganese operations, high costs for aluminium assets, and high capex at the South African coal assets.
Glencore was also in a similar position in terms of its South African coal assets, forcing the miner to consider a closure of its operations.
However, there has been some bright spots ahead predicted for South32.
Stanlib’s Kobus Nell explained to Mine Web that due to its asset make-up South32 is more vulnerable to commodity movements due to its higher operational leverage.
“South32 has lower margin type assets. Not the top quartile, tier 1 type of assets that you would find in, say, a BHP Billiton. They’re still good…. But with that comes higher operational leverage and commodity price sensitivity. Even BHP was down [on Friday], but not by much because they are less exposed to that kind of risk.”
However, in turn the miner will see greater upsides to movements in the market and greater growth off stronger commodity prices, presenting a more positive future, if it can weather the current commodity storm.