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COMMENT: BHP Billiton offers details of asset spinoff

For weeks talk and stories about BHP Billiton's streamlining of its assets have been making the rounds in mining circles. So it's no surprise that the company has finally released some details about its plans.


For weeks talk and stories about BHP Billiton‘s streamlining of its assets have been making the rounds in mining circles. So it’s no surprise that the company has finally released some details about its plans.

BHP Billiton intends to create two companies with complementary portfolios. It will focus on what it calls the “four pillars” iron ore, copper, coal and petroleum. There is also talk of making potash the “fifth pillar.” The attraction of these sectors is the large, long life nature of the assets.

The new company (NewCo) will receive the aluminum and manganese business, the Cerro Matoso nickel project, South African coal and Illawarra metallurgical coal assets, as well as the Cannington silver-lead-zinc mines.

Shareholders of BHP Billiton Limited and Plc will be entitled to 100% of the NewCo shares through a pro-rata in-specie distribution. NewCo will be listed on the Australian and Johannesburg stock exchanges. Establishment of a head office is Perth, Australia, as is a regional office in Johannesburg, South Africa. The assets proposed for NewCo support 24,000 employees and contractors.

BHP Billiton has also named the people who will head the NewCo management. David Crawford, who is retiring from the board later this year, will be the chairman. Current CFO Graham Kerr will become CEO, and the head of investor relations Brendan Harris will become CFO.

BHP Billiton CEO Andrew Mackenzie painted a rosy picture for the future. He said, “In a single step, we will significantly increase BHP Billiton’s focus on the exceptionally large resource basins that underpin its competitive advantage. As we move towards a simpler portfolio, comprised of our pillars of iron ore, copper, coal, petroleum and potentially potash, we will become a higher margin, higher return business.”

He went on to say, “By concentrating on what we do best, the development and operation of major basins, we can improve our productivity further, faster and with greater certainty. With a simpler portfolio, we are targeting sustainable, productivity-led gains of at least US$3.5 billion per annum by the end of the 2017 financial year.”

The NewCo assets, though not as large as those of BHP Billiton, are among the highest quality in their sectors. Mackenzie concluded, “We believe they will be more valuable in a purpose built, independent company than they would be in BHP Billiton. With experienced management and a strategy and cost structure tailored to the scale of its businesses, the demerged company would be well placed to create substantial additional value for shareholders and rewarding careers for employees.”

The demerger looks like a win/win situation thus far. Any shareholder in both companies, if they perform as promised, will be happy.


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1 Comment » for COMMENT: BHP Billiton offers details of asset spinoff
  1. P. A. Ferron says:

    Very smart move which will result in faster and stronger growth for all it’s assets

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