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Why the South32 Ltd share price keeps falling

Credit: South 32

It’s getting uglier and uglier for shareholders of South32 Ltd (ASX: S32). Its share price has slipped to a fresh all-time low today.

South32 made its debut on the ASX in May this year after being spun-off from parent entity BHP Billiton Limited (ASX: BHP). It initially opened towards the lower end of its expected range ($2 to $3.50) at $2.13 with a market value of $11.3 billion and quickly rose to $2.45 a share.

Unfortunately, it’s been all downhill since then. The shares are currently trading for just $1, giving the company a market capitalisation of $5.46 billion, while the share price hit a low of just 96 cents earlier in the session.

The violent dive in South32’s share price has been caused by a number of factors, not least the crash in commodity prices which have dragged the share prices of most miners down over the last 12 months. This will likely continue to impact earnings while it could also result in huge write-downs, which would explain why the shares are trading at such a discount to their book value.

As my colleague highlighted on Thursday, it’s also possible that South32’s shares are falling based on the expectation the miner will drop its secondary listing in London next year. South32 has shares listed on the Australian, London and Johannesburg share exchanges but could scale those back due to lack of liquidity (notably, a large bulk of its operations are in South Africa – so don’t expect it to drop its Johannesburg listing).

Although the shares have more than halved in price since May, buying South32 shares today could still be a very risky move. Chinese growth is expected to continue stalling which should place even more pressure on commodity prices and see South32 shares fall below their current level.

In my opinion at least, there are plenty of other, better, opportunities to take advantage of today instead.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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