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 BHP said its board was considering a spin-off at meetings ahead of
its annual results announcement next week. One report 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 capitalization of $185 billion, said in
a statement to the Australian stock exchange.
The company has long flagged that it wanted to sell or spin off its
manganese, aluminum and nickel assets, which contribute very little
to its earnings, and it said on Friday simplifying the company would
"generate stronger growth in cash flow and a superior return on
investment".
BHP is relying on iron ore for the lion's share of fiscal 2014
earnings, after beating its own guidance for full-year iron ore
output, mining a record 225 million tonnes.
"Spin-offs have the potential to crystallize 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.
Boyd-Clark declined to put a value on the spin-off ahead of an
announcement on what would be included in the new company.
The Australian Financial Review (AFR) newspaper said the separate
company would comprise BHP's aluminum, manganese, nickel, Cannington
silver mine and South African energy coal assets and would be worth
$14 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 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. In its statement to the
market, it said it expected to consider a demerger when the board
meets next week and would announce any material decisions
immediately.
It is scheduled to announce full-year earnings on Aug. 19.
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FOUR PILLARS
UBS analyst Glyn Lawcock predicted last month that BHP would go
through a three-step process, selling its Nickel West business, then
spinning off its manganese, aluminum 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 the company 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
aluminum, base metals, coal and iron ore.
But those former Billiton assets barely contribute to earnings now,
as CEO Andrew Mackenzie has championed the group's four key
commodity "pillars" - iron ore, petroleum, copper and coal.
"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 on Friday.
(1 US dollar = 1.0724 Australian dollar)
(Reporting by Sonali Paul; Additional reporting by James Regan in
Sydney; Editing by Alan Raybould)
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