BHP Billiton (BHP) has confirmed that it will spin-off its aluminium, coal, manganese, nickel and silver assets into a new company.
But the troubled WA nickel assets bought from Western Mining nine years ago, won’t be included, which is a touch ironic given they seem to have been the basis for the spin off idea taking hold in the market’s mind and within BHP.
The announcement came as the world’s biggest miner lifted its full year profit 23% to $US13.8 billion, from $US10.9 billion in 2012-13.
Included in the new company will be the company’s mostly high cost underground coking coal mines in the Illawarra region, south of Sydney (something of a surprise) as well as BHP’s existing aluminium, manganese and nickel assets.
The new company could be worth around about $US15 billion when listed, according to CLSA Asia-Pacific Markets.
As predicted, BHP chief financial officer Graham Kerr will switch to become chief executive of the spun-out entity and will be replaced at BHP by copper boss Peter Beaven.
The new company will be chaired by long time BHP director David Crawford.
Some investors rightly question the mining credentials of these two and want to know where the mining expertise will be on the board.
BHP chief executive Andrew Mackenzie stressed the demerger proposal would require approval from BHP shareholders, the BHP board and some external stakeholders.
The process is expected to be completed in the first half of 2015.
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With some UK investors moaning about it, could they try and vote down the split next year?
"BHP Billiton is becoming a simpler, more productive company and the demerger we have announced today is an important step forward,” he said.
Mr Mackenzie said the assets in the spun-out company may not have the quality of BHP’s "pillars" but they were built to BHP’s high standards.
Mr Kerr said he was honoured to take the helm of the new company.
"I’m very confident it will perform competitively from inception," he said in a statement yesterday.
Mr Kerr said the new entity would have averaged an EBITDA of about $US3.3 billion had it existed over the past decade.
The assets being spun off produced about $1.4 billion in cash last year, according to BHP.
Included in the new company will be BHP’s aluminium and manganese businesses and the Cerro Matoso Nickel in Columbia, Energy Coal South Africa, Illawarra Metallurgical Coal and Cannington Silver-Lead-Zinc mines, both in Australia.
With operations in five countries, the company would have about 24,000 employees and contractors, according to BHP’s statement yesterday.
While the new company will contain BHP’s Columbian nickel assets, the Nickel West assets based in Western Australia won’t be included and BHP indicated yesterday it is talking to several possible partners or buyers.
Mr Mackenzie said a sale process for Nickel West operations in Western Australia would continue, and there were "several potential partners or buyers”.
The Cannington lead and silver mine in Queensland will be tipped into the new company. It is coming to the end of its life.
Inclusion of the South African and Illawarra coal mines means BHP’s commitment to coal will become more heavily based on the Bowen Basin in Queensland owned 50-50 with Mitsubishi of Japan.
BHP will retain some thermal coal exposure through its Hunter Valley mines and associated assets.
The new company’s headquarters will be in Perth, while a regional office will be located in Johannesburg.
The new company is expected to be listed on the Australian share market by the middle of next year.
