(Bloomberg Gadfly) — For all the debate about activist investor Elliott Management Corp.’s assault on the mining company now rebranding itself as BHP, there’s another question investors should be pondering: What’s going to become of Billiton?
South32 Ltd., the company spun out of BHP Billiton Ltd. in 2015 and consisting largely of sub-scale assets brought into the business in its 2001 merger with Billiton Plc, has put in a creditable performance of late.
As Elliott would be happy to point out, South32’s shares have risen about 28 percent since the split, compared with a 21 percent drop at its larger sibling. After two years of losses, analysts expect $1.24 billion of net income in the year through June. In a mining industry still groaning under the weight of its debts, South32’s $859 million net cash pile is the biggest after Coal India Ltd. and Hindustan Zinc Ltd.
South32 net cash $859 million
A problem looms on the horizon, though — because South32 is living on borrowed time.
Every resources company has to deal with the fact of its own mortality. Unlike shoe factories or social-networking apps, mineral deposits have a finite lifespan. Mining bosses are in a constant race to extend their reserve base faster than their drills and dump trucks can exhaust it.
That’s a major challenge for South32. Its crown jewel — the Cannington zinc-lead-silver mine in northwestern Australia, which generated almost 70 percent of Ebit in the most recent fiscal year — is almost tapped out, with just six years of reserve life left at current mining rates.
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