It's been a rough couple of months for the freshly-listed South32 Ltd (ASX: S32), which was spun-off from mining heavyweight BHP Billiton Limited (ASX: BHP) in May this year. After debuting at $2.13 the stock surged to a high of $2.45 but has since plummeted just over 30%, compared to a 2.2% decline for the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO). It fell 4.2% during Monday's session to close at just $1.705.
Prior to its stockmarket debut, many investors — myself included — believed that South32 could be a great stock for long-term investors. Indeed, the assets that it now owns and operates were neglected under the management of BHP Billiton giving South32, led by Graham Kerr, the ability to reduce costs and improve operating efficiencies.
I still believe that to be the case, although I also feel shareholders of South32 could be in for more pain in the near-term. Although the group is heavily diversified with a portfolio consisting of no less than 10 commodities which include aluminium, manganese and nickel it is still susceptible to negative movements in the prices of those commodities.
That has certainly been the case since South32 became a listed entity on the Australian Securities Exchange with some analysts even expecting earnings to slide by more than 50% over the next year if current economic conditions persist.
Given the recent volatility sparked by China's sharemarket meltdown, that is looking increasingly likely to be the case. As is the case with any mining corporation, South32 has little control over the price at which it sells its commodities and must accept whatever price the market is generally dictating at the time.
With further downward pressure expected to be applied to the commodities which South32 produces, now mightn't be the ideal time to load up on the miner's shares. In saying that however, I certainly believe South32 is a stock for your watchlist in case the stock begins trading at a price you simply cannot refuse.
