BHP Billiton's South32 spin-off tipped for success despite commodities downturn

Mining spin-off South32 has received a positive response from institutional investors just weeks after the company was de-merged from its parent BHP Billiton.

Brokers Jefferies and Deutsche Bank have slapped glowing recommendations on the company, which has a market value of around $10bn (£6bn).

Deutsche Bank, which rates the stock as a hold, said: “The listing of South32 has created a $10bn diversified global mid-cap miner with a strong balance sheet and reasonable cash flow from what we think is a mixed asset base.”

Jefferies was more bullish handing the company a buy recommendation and a price target of 145p per share. Share in South32 traded in London were down about 4pc at 112p yesterday.

“All things considered, South32's financial strength and inexpensive valuation offset its asset quality issues,” said Jefferies in a note to investors.

South32 will produce alumina, aluminium, coal, manganese, nickel, silver, lead and zinc from mines and smelters in Australia, South American and Africa. Earlier this month, the company’s chief executive Graham Kerr, said it would consider acquisitions as a potential option going forward.

Despite the spin-off, BHP Billiton like most of its peers still faces severe headwinds from the decline in iron ore and coal prices over the year as demand from China has weakened. The company, which is the largest diversified mining group listed in London, is continuing to streamline its operations in the face of the current downturn in commodities.