No. 1 global miner BHP Billiton Ltd yesterday said that its proposed spinoff, South32, would start life with only modest net debt, allowing the new company room to expand and open additional mines.
BHP is recommending that shareholders vote in favor of the move at meetings set for Perth and London on May 6.
“The demerger will simplify BHP Billiton and has the potential to unlock shareholder value, while creating a new global diversified metals and mining company with a significant industry presence in each of its major commodities,” BHP chairman Jac Nasser said.
The split is aimed at allowing BHP to focus on its core long-life operations — iron ore, copper, petroleum, coal and potash — which generate most of its profit, separating them from smaller assets.
SOUTHERN SHIFT
South32’s operations are to include aluminum, coal, nickel, manganese, silver, lead and zinc, with most of its mines in the southern hemisphere.
“South32’s pro forma balance sheet as at [Dec. 31 last year] includes net debt of US$674 million, including finance leases,” BHP said.
That would be just a fraction of its expected market value and will give South32 room to take on new debt and expand, OptionsXpress market analyst Ben Le Brun said.
“So, I think they will actively pursue growth aspirations,” Le Brun said.
The new entity, with gross assets worth US$26.7 billion, is to be listed in Sydney, London and Johannesburg.
SHARE PLAN
Under the plan, those eligible would retain shares in BHP Billiton and receive a new share in South32 for every BHP share they own.
In a presentation, it said the demerger would see a “modest reduction in net debt” for BHP Billiton, which at last month’s interim result was US$24.9 billion.
The total one-off costs of implementing the split are estimated to be about US$738 million. However, BHP expects the move to save about US$100 million a year.
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