Global mining giant BHP Billiton Ltd yesterday said it could spin off unwanted assets to focus on top-tier commodities such as iron ore, copper, coal and petroleum.
The world’s biggest mining company did not say which businesses could be demerged, but reports this year said its aluminum, bauxite and nickel assets could be spun-off into a single entity worth about A$20 billion (US$18.5 billion).
“BHP Billiton has been simplifying its portfolio for over a decade and is pursuing options to make the company simpler and more productive,” the company said in a statement.
It signaled in April it might sell some assets but did not say how this would be achieved.
“Since then, the board has continued to study various structural alternatives including at its meeting this week. A demerger of a selection of assets is our preferred option... The board expects to consider this, and other matters, when it reconvenes next week. We believe that a portfolio focused on our major iron ore, copper, coal and petroleum assets would retain the benefits of diversification, generate stronger growth in cash flow and a superior return on investment,” the company said in the statement.
“By increasing our focus on these four pillars, with potash as a potential fifth, we will be able to more quickly improve the productivity and performance of our largest businesses,” the statement added
BHP’s aluminum, manganese and nickel unit accounted for about 14 percent of revenue in the 12 months ended June 30 last year. That was down from about 30 percent in the year through June 2007, according to filings. Revenue from iron ore has risen from about 12 to 31 percent over the same period
A spin off that included nickel, manganese and aluminum operations which span Australia, South Africa and Colombia, a South African coal unit and the Cannington lead and silver mine could be worth as much as US$12 billion, according to a valuation yesterday by CLSA Asia Pacific Markets.
Such a restructuring would be the largest since the A$3.3 billion spin off of its steel unit in 2002. A demerged company would probably be based mainly around former BHP assets, UBS AG analyst Glyn Lawcock said in a note to clients on July 14. A new company would likely have a primary listing in Australia and might also be listed in the UK and South Africa, Lawcock said.
Mining companies are cutting costs and sharpening portfolios as commodity prices retreat and poorly timed acquisitions in a decade-long US$614 billion investment spree led to asset write-downs and management clear outs. Investors including BlackRock Inc’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.
Shares in BHP, which reports its annual results on Tuesday next week, jumped nearly 3 percent in Australia on the news to A$39.19.
Additional reporting by Bloomberg
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