South32 Ltd (ASX: S32) has fallen victim to the market's severe sell-off today with its shares tumbling 4.7% to a new all-time low of $1.74 per unit. South32 joined the ASX last month after being spun-off from its parent entity, BHP Billiton Limited (ASX: BHP).
Although it soared to a high of $2.45 shortly after listing (up from a debut price of $2.13), it's been all downhill since then with the diversified miner recording a loss of 29%. The shares are down 11% since Thursday last week.
Although investors were initially attracted to South32 due to the commodities it is exposed to, many of those commodities are now tumbling in price with some analysts forecasting a severe impact on earnings. To make matters worse, it was revealed on Thursday that BlackRock has ceased to be a substantial holder in the business, highlighting the lack of enthusiasm now surrounding the stock.
While the Fairfax press is reporting that South32 could be a takeover target of global mining giants such as Mick Davis' X2, it is unlikely that an offer would be made until South32's shares fell to a level even lower than today's price. If commodities such as aluminium and manganese continue to fall in value, that could come to fruition.
One of the key attractions to a South32 investment is, and always was, management's ability to significantly scale back costs and improve operating efficiencies. These improvements were never going to be made overnight but are instead a way for management to significantly improve earnings over the course of a number of years.
In my mind, this made it an attractive proposal for long-term investors. However, given the scope for further declines in commodity prices, that could drag the share price even lower in the near future so investors may want to hold off from purchasing South32 shares, for now at least.
