BHP Billiton set to spin off unwanted assets

Posted by Eric Haun
Friday, August 15, 2014

Diversified mining company BHP Billiton declared its preference for a demerger of its aluminium, manganese and nickel assets on Friday, setting the stage for the formation of a separate business that could be worth at least $12 billion.

BHP said its board was considering a spin-off at meetings ahead of its annual results announcement next week. An Australian newspaper said those plans were well advanced and would include the Nickel West business that the world's biggest miner has been trying to sell.

"A demerger of a selection of assets is our preferred option," the company, which has a market capitalisation of $185 billion, said in a statement to the Australian stock exchange.

BHP has long aimed to sell or spin off its manganese, aluminium and nickel assets, which contribute little to its earnings. Simplifying the company would "generate stronger growth in cash flow and a superior return on investment", it said on Friday.

Some of the largest shareholders in BHP welcomed the announcement.

"It's good to see BHP taking the lead in the sector on this. It reassures you as a shareholder. It makes me more willing to have it as a significant bet within my fund," said Christopher Moore, portfolio manager of Fidelity Global Industrials Fund.

"Really we should see more of this in the mining sector. I would expect others to take BHP's lead. Rio Tinto, Anglo American could also follow suit in doing this."

BHP's rivals Anglo American and Rio Tinto have both said they would focus on the parts of their portfolio that can deliver higher return.

BHP is likely to offload between $1.0-2.7 billion of its debt to the new vehicle, according to analysts. Any more than that could be challenging to handle for a company that relies on assets whose profitability can be volatile.

Its net debt as of Dec. 30 was $27.1 billion.

Shares in BHP were up almost 2 percent by 1511 GMT, outperforming a 0.6 rise in an index of London-listed mining companies.

Iron Ore Drives BHP Profits
BHP is relying on iron ore for the lion's share of fiscal 2014 earnings after beating its own guidance for full-year output.

"Spin-offs have the potential to crystallise value that the market may not have been able to see," said Neil Boyd-Clark, a portfolio manager at Arnhem Investment Management, which owns shares in BHP.

The Australian Financial Review (AFR) newspaper said the separate company would comprise BHP's aluminium, manganese, nickel, Cannington silver mine and South African energy coal assets and would be worth $14 billion.

Analysts were divided over the precise value of those assets, with estimates ranging from $12 billion to $23 billion.

BHP was also debating whether to spin off its coal assets in New South Wales, the AFR said, without citing any source. The new company would be based in Perth and led by BHP's Chief Financial Officer Graham Kerr, it said.

It would have a primary listing on the Australian stock exchange and was likely to take a secondary listing in South Africa, the AFR added.

BHP declined to comment on the AFR report.

"Whether to list in Australia and South Africa will be a marketing decision. It's a question of matching the investor base," said a banker familiar with BHP's thinking. "Looking at the base metals space you don't have many listed names in Australia. And in South Africa, you can tap some money from pension funds who can only invest in rand."

Analysts and investors expect BHP to offer its existing UK shareholders - some of which may not have a mandate to own shares in companies listed abroad - the option to take shares in the new vehicle or an equivalent payment in some form, potentially through a buy back.

"I think if you have a global fund like me you will hold the Spinco (spun-off company)," Moore said. "If you are a UK-focused fund you wouldn't want the Spinco. Ideally the arrangement will incorporate that flexibility."

In its statement to the market, BHP said it expected to consider a demerger when the board meets next week and would announce any material decisions immediately.

BHP is scheduled to announce full-year earnings on Aug. 19.

Four Pillars
UBS analyst Glyn Lawcock said last month he expected BHP to go through a three-step process, selling its Nickel West business, then spinning off its manganese, aluminium and South African energy coal businesses as a separate company to all shareholders, before unwinding its dual-listing in London.

Most of the assets that analysts expect it to shed came into the company through London-listed Billiton when it merged with BHP in 2001.

At the time, those assets were touted for the diversity they brought, creating a mining giant with roughly equal earnings from aluminium, base metals, coal and iron ore.

But they barely contribute to the company's profits now, overshadowed by a decade of soaring growth in its iron ore, copper and coal businesses driven by China's rapid economic expansion.

At the same time, BHP has expanded in oil and gas through shale acquisitions in the United States.

"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 company said in its statement.

(1 US dollar = 1.0724 Australian dollar)

(By Sonali Paul and Silvia Antonioli; Additional reporting by James Regan in Sydney and Nishant Kumar in London; editing by Tom Pfeiffer and Pravin Char)

Maritime Today


The Maritime Industry's original and most viewed E-News Service

Maritime Reporter July 2016 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

No Clues on Hanjin's Financial Health

Cash-strapped Hanjin Shipping Co. sources say that the negotiations with tonnage providers for lower rates are undergoing, but wouldn't say much else.   According to Korea Herald, the country's No.

DP World's H1 Volumes Rise

Ports operator DP World reported on Tuesday first-half 2016 gross container volumes up 1.2 percent on a like-for-like basis and up 2.5 percent on a reported basis.

Samil PwC Okays Hyundai's Management Improvement Plan

Hyundai Heavy Industries (HHI) is notified by Samil PwC, a local member of the global accounting firm PwC, that its 3.5 trillion won worth management improvement

Bulk Carrier Trends

LNG-fueled Bulker Ordered from Korea

Hyundai Mipo Dockyard (HMD) has signed a contract to build a 50,000 dwt bulk carrier with ILSHIN LOGISTICS. The project is a collaboration between POSCO and ILSHIN

Broad Declines drag Baltic Index down

The Baltic Exchange's main sea freight index, tracking rates for ships carrying dry bulk commodities, fell on Tuesday on lower rates for capesize, panamax and supramax vessels.

How to Avoid Claims for Self-cooking Cargo

North P&I Club has advised its members to be extra vigilant during loading and transport of soya beans to ensure they do not get blamed for cargoes that start ‘cooking’ at sea.

Finance

Summer Cruise to North Sea Oil Rigs Amazes Tourists

Bored with palm-fringed beaches and turquoise seas? Then the gigantic oil platforms of the North Sea beckon. The first ever "rig-spotting" cruise just ended off the coast of Norway,

No Clues on Hanjin's Financial Health

Cash-strapped Hanjin Shipping Co. sources say that the negotiations with tonnage providers for lower rates are undergoing, but wouldn't say much else.   According to Korea Herald, the country's No.

China Joins UN Trucking Treaty

China has taken a major step towards establishing a speedy new "Silk Road" to Europe by signing up to a U.N. trucking treaty.   Fifteen years after joining the World Trade Organization (WTO),

News

Technip Bags Woodside's Subsea Contract

Technip has been awarded a large(1) subsea contract by Woodside to support the development of the Greater Enfield Project offshore Western Australia, at a water

Keel Laying for Russia's Second Nuclear Icebreaker

Today the Baltic Shipyard in St Petersburg (part of United Shipbuilding Corporation) laid the keel of Ural, Project 22220’s second series-produced nuclear icebreaker.

Guzmán Re-elected Harbor Commission President, Long Beach Port

Harbor Commission President Lori Ann Guzmán was re-elected Monday evening to serve a second one-year term leading the board that oversees the Port of Long Beach, the nation’s second-busiest seaport.

Logistics

No Clues on Hanjin's Financial Health

Cash-strapped Hanjin Shipping Co. sources say that the negotiations with tonnage providers for lower rates are undergoing, but wouldn't say much else.   According to Korea Herald, the country's No.

New Container Facility at Krishnapatnam Port

Krishnapatnam Port, India's largest all-weather; deep water port on the east-coast of India has inaugurated CONCOR’s - Port Side Container facility – a Government of India undertaking.

China Joins UN Trucking Treaty

China has taken a major step towards establishing a speedy new "Silk Road" to Europe by signing up to a U.N. trucking treaty.   Fifteen years after joining the World Trade Organization (WTO),

 
 
Maritime Careers / Shipboard Positions Maritime Security Naval Architecture Offshore Oil Pipelines Ship Electronics Ship Repair Ship Simulators Sonar Winch
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.1495 sec (7 req/sec)