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South32 debuts on the JSE: Mike Fraser – president & COO Africa, South32

‘These assets are not well known by the investment community.’

SIKI MGABADELI: The much-anticipated listing of South32 took place today with the company making its debut on the Australian, Johannesburg and London stock exchanges. As you know, shareholders of BHP Billiton overwhelmingly approved the transaction to demerge some of its non-core assets into a company called South32. South32 today ended up 3% at R20.24 on the Johannesburg Stock Exchange. BHP Billiton, though, ended down just over 4%.
    Mike Fraser is president and COO for Africa at South32 and joins us now. Mike, thanks for your time today and congratulations on that debut. But every reporter [we] read felt that it was a bit muted. How did you feel about it?

MIKE FRASER: Well, Siki, good evening and thank you for the time this evening. I think there are a couple of things that are probably at play here in terms of determining the ultimate price at which South32 will trade.
    I think the first one is there is likely to be a lot of movement in the share price as the investors find their position relative to the indices. So with our trading we’ll have a 100% index weighting in Australia and therefore you’ll find net buying into Australia as people grapple with weighted positions, and some selling out of UK as people rebound their investment in the stock. So I think that will be one impact.
    I think the second relative impact is that these assets are not well known by the investment community so I think they’ll take some time for people to understand them.
    And then I think the third impact on the price is really just that people are still a little bit muted about the actual sector, the resources sector. It will take some time, I think, for it to find its true price.

SIKI MGABADELI:  Look, today was a good day on the JSE to be in the resources industry and obviously, as I mentioned, the share price closed up 3%. But let’s talk a bit about these assets. It’s a mix, obviously, and obviously people are looking at them as a group, but also as individual businesses. How would you want them to have a look at them?

MIKE FRASER: Well, I think first and foremost these are high-quality cash-generative assets. So each of these assets have been well maintained, they are run by quality people, and we believe that we can actually still deliver more potential out of these assets. But they come to the market as being high-quality, well invested assets. I think each of these commodities are slightly in different cycles. If you read some of the reporting that is under way, the suite of assets actually has some upside potential, particularly in the industrial metals which seem to have followed the primary bulks in recovery. So things like aluminium, nickel, the silver, lead, zinc, seem to have a little bit more upside potentially in price.
    But I think if you look at even our coal assets, while they are in a pretty subdued…in the cycle, we’ve seen quite a lot of potential to improve those assets and deliver more value out of them.
    I think the one commodity that probably has the most pressure under it is manganese. The manganese ore price is off nearly 50% over the last 24 months, and that definitely is a drag. But even within that we have a really fantastic position and we believe that we can get the most value out of those.

SIKI MGABADELI:  And China of course is the largest consumer of manganese.

MIKE FRASER: Yes, absolutely. So China is the big consumer of manganese. The one great thing about manganese ore is that it’s not a recyclable ore. Every time you recycle a ton of steel you use manganese, so there is a secondary demand for manganese. So we think it’s a good commodity.

SIKI MGABADELI:  Thanks, Mike.

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