BHP may announce assets sale
BHP Billiton may announce a spinoff of assets estimated to be worth as much as $12bn this week, as the world’s biggest mining firm casts aside units acquired in the purchase of Billiton.
BHP Billiton may announce a spinoff of assets estimated to be worth as much as $12bn this week, as the world’s biggest mining company casts aside operations acquired in the 2001 purchase of Billiton.
Directors will consider a structure to focus BHP on its four main products, including iron ore and petroleum, when they meet this week, and announce any decisions immediately, the Melbourne-based company said on Friday.
It has already sold assets worth $5.2bn since January 2012 as part of plans to simplify its portfolio.
Focusing BHP on iron ore, copper, coal and petroleum projects that stretch from Australia to the Americas and generated about 85% of its sales last year, will raise free cash flow, help boost production growth and deliver stronger return on investment, CEO Andrew Mackenzie, who was appointed in February last year, said in a May speech.
He 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 a statement. “A demerger of a selection of assets is our preferred option.”
A spinoff that included nickel, manganese and aluminum operations which span Australia, SA and Colombia, a South African coal unit and the Cannington lead and silver mine may be worth as much as $12bn, according to a valuation from CLSA Asia-Pacific Markets.
Mining companies are cutting costs and sharpening portfolios as commodity prices retreat and after poorly timed acquisitions in a decade-long $614bn investment spree led to asset writedowns and management clear-outs. Investors including BlackRock’s Evy Hambro, who manages the $8bn World Mining Fund, have urged producers to refrain from costly growth projects and focus on shareholder returns.
The $11.6bn acquisition of Billiton gave BHP assets including aluminum, nickel and thermal coal that no longer fit Mr 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.
Chief financial officer Graham Kerr may run the spinoff company from headquarters in Perth with a portfolio that includes BHP’s West Australian nickel unit and the Cannington mine, the Australian Financial Review reported on Friday.
Glencore CEO Ivan Glasenberg said in March the commodity trader and metals producer planned to study BHP’s Australian nickel division. BHP confirmed in May it was considering the sale of all or part of the unit.
“Globally there are not that many reasonable quality mid-cap diversified mining groups,” he said.
Shareholders will seek more clarity on Mr Mackenzie’s plans for BHP’s remaining portfolio amid weak prices for iron ore, petroleum and copper, according to Tim Schroeders, a Melbourne-based portfolio manager who helps manage $1bn in equities, including BHP shares, at Pengana Capital.
“When the price of the commodities in those divisions have all fallen, it’s difficult to grow your profits, despite volume increases and cost cutting, so that’s the big picture,” Mr Schroeders said by phone, before BHP’s statement.
“In terms of repositioning the businesses, I don’t think that there’s a magic wand.”