Investment: Billiton springs to life with a groundbreaker

IT'S NO SURPRISE that investors are wary of Billiton. Shares in the South African mining group, spun off from Gencor last summer, have almost halved in value since they started trading in London.

This is partly the result of the Asian downturn, which has hammered commodity prices. But the underperformance is also due to Billiton's reluctance to spend some of its $1bn cash pile on acquisitions.

To be fair, Billiton has not been completely idle. In the past year it has sanctioned capital projects worth $2.7bn (pounds 1.6bn) while quietly buying several minority shareholdings.

Yesterday, however, may mark a turning point in Billiton's stock market fortunes. Suddenly it sprang into life, making a bid for the 47 per cent of Australian miner QNI that it does not already own.

At the same time it unveiled an innovative plan that will allow it to buy back and reissue shares at will - a move that will gear up its balance sheet in the short term but not prevent it from being able to do large deals as they arise.

All this after Billiton reported a 44 per cent jump in pre-exceptional attributable profits on a 3 per cent increase in turnover.

Ultimately, Billiton's fortunes remain determined by trends in global commodity prices. Although there is little immediate prospect of a recovery, they are also unlikely to fall much further than they already have. With its cash pile, Billiton should be able to pick up decent assets at a reasonable cost.

Billiton shares, which had already bounced back from their low point as investors sought desperately for a safe haven from the global market turmoil, added another 4p yesterday to close at 126.5p.

Investors hoping for a rapid recovery in the share price could be disappointed: on a forward multiple of less than 10 times forecast June 1999 earnings, Billiton offers good long-term value.