The Sunday Mail
BHP BILLITON Ltd may announce a spinoff of assets estimated to be worth as much as US$12 billion this week, as the world’s biggest mining company casts aside operations acquired in the 2001 purchase of Billiton Plc.
Directors will consider a structure to focus BHP on its main products, including iron ore and petroleum, when they meet this week, and announce any decisions immediately, the Melbourne-based company said on Friday in a statement.
It’s already sold assets worth US$5,2 billion since January 2012 as part of plans to simplify its portfolio.
“The market will be quite well predisposed to it and it probably adds some value to the BHP story,” said Brenton Saunders, a Sydney-based investment analyst with BT Investment Management Ltd, which manages about A$64 billion ($60 billion) and holds BHP shares.
“The devil is in the detail, it will depend on which assets are included and which aren’t.”
“Focusing BHP on iron ore, copper, coal and petroleum projects that stretch from Australia to the Americas and generated about 85 percent of its sales last year, will raise free cash flow, help boost production growth and deliver stronger return on investment, Chief Executive Officer Andrew Mackenzie said in a May speech.
Mackenzie, appointed in February 2013, also identified potash as a potential fifth unit.
“The board has continued to study various structural alternatives, including at its meeting this week,” the company said in the statement. A demerger of a selection of assets is our preferred option.”
Shares Gain
BHP accelerated gains after the announcement in Sydney on Friday, trading 2,6 percent higher at A$39.15 at 3:04 p.m. local time, the highest since February 24.
A spinoff that included nickel, manganese and aluminium operations which span Australia, South Africa and Colombia, a South African coal unit and the Cannington mine may be valued at as much as US$12 billion, according to CLSA Asia-Pacific Markets.
Such a restructuring would be the largest since the A$3,3 billion spinoff of its steel unit in 2002.
A demerged company will probably be based mainly around former Billiton assets, Glyn Lawcock, an analyst at UBS AG in Sydney, said in an July 14 note to clients.
A new company would likely have a primary listing in Australia and may also be listed in both the U.K. and South Africa, Lawcock said.
Mining companies are cutting costs and sharpening portfolios as commodity prices retreat and after poorly timed acquisitions in a decade-long US$614 billion investment spree led to asset writedowns and management clear-outs. Investors including BlackRock Inc. (BLK)’s Evy Hambro, who manages the US$8 billion World Mining Fund, have urged producers to refrain from costly growth projects and focus on shareholder returns.
Billiton Takeover
The US$11,6 billion acquisition of Billiton gave BHP assets including aluminium, nickel and thermal coal that no longer fit Mackenzie’s strategy of focusing on four main commodities. BHP spokeswoman Eleanor Nichols declined to comment on which assets may be included in any demerger.
Creating a smaller collection of operations with long lifespans may be a catalyst for further productivity savings, Mackenzie said in May.
BHP’s thermal coal, manganese and nickel assets may be worth about US$14 billion, RBC Capital Markets wrote in a note in May.
The producer’s Cannington lead and silver mine in Australia’s Queensland state may be worth US$2.3 billion, London-based RBC analyst Timothy Huff wrote in a May 6 note.
In 2011, as China devoured everything from iron ore to copper to feed economic expansion, BHP’s return on invested capital was 35 percent, according to data compiled by Bloomberg. The figure slumped to 13 percent two years later as Chinese growth slowed, the data show.
BHP’s aluminium, manganese and nickel unit accounted for about 14 percent of revenue in the 12 months ended June 30, 2013. That’s down from about 30 percent in the year through June 2007, according to filings.
Revenue from iron ore has risen from about 12 percent to 31 percent over the same period. — Bloomberg.
