The new company spun out of BHP Billiton on Wednesday is ready and equipped to buy new assets, but the man in charge insists that acquisitions will not be the prime focus of its first few months.
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Speaking as BHP shareholders approved the demerger in Perth, South32 chief executive Graham Kerr said he did not want to make the mistake of prioritising acquisitions, despite the company beginning life with a strong balance sheet and minimal debt amid a commodity price collapse.
"Companies that start on day one saying we have to go buy something, they end up paying too much at the wrong time and put themselves into trouble. We will be ready, but it is not the primary focus," he said.
"We will continue to look at ways to maximise the portfolio, that will be internally and externally, we have always said M&A is opportunistic, it is not really a strategy."
Despite persistent rumours that X2 Resources will try to spend its $US5.6 billion on South32, Mr Kerr said he had not been approached by a predator to date.
"When we think about any opportunities to add to the portfolio or change the portfolio it will always be through the lens of how we generate the best returns and how we grow that cashflow profile," he said.
South32 will begin trading on the ASX on May 18 and Mr Kerr said one of the first opportunities to create value for shareholders would be through extending the mine life at assets like the Cannington silver and lead mine, or the manganese business on Groote Eylandt.
Mr Kerr will also install a "regional" management structure, which Shaw Stockbroking analyst Peter O'Connor believes could result in hundreds of job cuts and savings of up to $50 million.
"South32 is very clearly a cost out, not growth story. We have now confirmed the potential for South32 to remove a significant amount of overhead quite quickly post the demerger, not least because of the move to a regional as opposed to functional service/support function," said Mr O'Connor in a note to clients after touring the South32 assets last week.
Mr Kerr conceded there would be job cuts, but would not say how many, and said there were larger productivity gains to be achieved by the regional structure than merely job cuts.
"There will be some [job cuts] but it is not the primary focus of doing it, for me it is all about having the right people do the right work at the right location," he said.
Mr Kerr has worked at BHP for more than 20 years, and has spent the past three as chief financial officer.
About 30 per cent of the South32 staff will have no prior connection to BHP, and Mr Kerr said he was looking forward to his first taste of being a chief executive.
"I like dealing with people, I like leading people I have always loved the operations, one of my first jobs was up at Cannington blowing things up, that is the side of the business I like," he said.
South32 is expected to reveal more about its strategy in August, and shares in the new company are expected to trade between $2 and $3.50 per share.
The BHP offshoot will inherit 12 businesses from BHP, and will produce commodities like manganese, silver, lead, zinc, thermal coal, coking coal and nickel.
