South32 Ltd (ASX: S32) shares recently plunged to their lowest traded price on record of $1.87, 12% below their listing price of $2.13, and 24% below the all-time high of $2.45 reached last month.
If we combine South32's fall with the 8% fall in the share price of BHP Billiton Limited (ASX: BHP), from $30.66 to today's price of $28.07, then shareholders in BHP before the split are now sitting on an 8.7% combined loss.
Why has the share price fallen?
The case for holding South32 was (and still is) largely based around the long-term value that the new management team should be able to extract from the spun-off businesses. The theory here is that the smaller, more nimble group can give each operation more attention than it received when part of the larger BHP group.
Most investors realise that it will take time for these improvements to be noticed on the cash-flow statement, however share market analysts and traders are notoriously short-term focussed, which is the real reason why the share price has fallen.
Prices for South32's main commodities; aluminium, alumina, coking coal, manganese and nickel have all fallen over the past six months, putting downward pressure on the profit forecasts and valuation estimates generated before the float.
Should South32 Ltd shareholders sell today?
My guess would be that if you were going to sell your South32 shares because you weren't comfortable holding the smaller, and potentially riskier, portfolio of mining operations then you would have done so shortly after the listing.
If you're holding shares then you're likely in it for the long haul and can be confident knowing that there haven't been any material changes in the group's position (other than the ever-changing price of commodities). South32 still operates a diversified portfolio of 10 commodities across multiple countries, still plans on delivering a dividend yield around 5%, and still has the ability to make massive efficiency improvements over the next two to three years.
Don't sell your South32 Shares
