BHP Billiton moves ahead with asset spin-off

BHP Billiton is to spin off assets across five countries in the biggest restructuring by a global mining house since the cooling of a decades-long commodities boom.

The divestment, announced on Tuesday, undoes much of the merger that created the Anglo-Australian resources group in 2001, listing a suite of aluminium, coal, silver and manganese mines and plants it will split off into a separate company.

The new, as yet unnamed company will be listed in Australia with a secondary listing in South Africa. Graham Kerr, chief financial officer at BHP, is to be chief executive.

Jac Nasser, BHP chairman, said: “For over a century, BHP Billiton has progressively reshaped its business to maintain its industry leadership. We believe the proposed demerger, if implemented, will accelerate the simplification of the group’s portfolio, provide investors with choice and unlock value in both companies.”

The plans were announced as BHP reported a 10 per cent rise in underlying annual profits to $13.4bn. Revenues rose almost 2 per cent to $67bn.

However, BHP did not announce a buyback of its shares, dashing hopes that it would start to return more cash to shareholders after two years of trying to rein in costs and debts that escalated during the commodities supercycle.

“We will return excess cash to shareholders in the most efficient way. By ensuring that we start from a position of strength, we will be well placed to implement an enduring programme that can be managed in a more consistent and predictable manner,” BHP said.

Shares dropped 3.1 per cent to £20.03 in early trading on Tuesday.

Andrew Mackenzie, chief executive, said the assets that would form the new company “will be more valuable in a purpose-built, independent company than they would be in BHP Billiton”.

Simplification is the biggest strategic decision yet under Mr Mackenzie, a Scot who took over as chief executive at BHP early last year as part of a wave of leadership upheaval at the world’s largest mining companies.

The spin-off concentrates BHP on four main commodities – iron ore, petroleum, copper and coal – where its margins are higher than for the assets it is separating off, and where BHP generated 96 per cent of its underlying annual earnings. BHP may also make a move into potash, a commodity that Mr Mackenzie favours for its links to long-term population and economic growth.

It reverses a period when BHP and rivals diversified as widely as possible and underscores miners’ avowed return to more disciplined and profitable investment. Shareholders have been angry that BHP and other miners did not manage to return more of the fruits of the commodities boom.

Among the assets to be spun off are aluminium and manganese businesses; Cerro Matoso Nickel in Colombia; coal businesses in South Africa and Australia; and Cannington, a large silver and lead mine.

BHP did not include Nickel West in Australia, suggesting it hopes to sell the business separately.

RELATED TOPICS

• Mergers & Acquisitions