BHP Billiton’s (BHP) board has recommended shareholders vote for the proposed spin-off of assets that will become the new company South32.
The assets include some of the lowest yielding for BHP which wants to slim down and concentrate on fewer resources, especially iron ore, copper, coal, oil and gas.
While the recommendation for the special shareholders meeting in May on the spin-off isn’t unexpected, it’s a sign the BHP board is determined to get the carve out of assets underway and happening, despite the slide in commodity prices this year.
BHP said shareholders would vote at a meeting on May 6 on the spin-off of South32, which would see investors receive one share in the separate company for every BHP share.
BHP last year announced its intention to spin-off nickel, aluminum and other properties in what would be one of the biggest demergers in mining history.
“Today BHP Billiton has interests in 41 assets across 13 countries and six continents,” the company said in a statement lodged with the ASX on the demerger.
It said the demerger materially simplifies the portfolio in a single step and is significant progress towards achieving an identified core portfolio for BHP of 19 assets across eight countries and three continents.
BHP said South32 intends to distribute at least 40% of its underlying earnings as dividends to shareholders.
It again reiterated that BHP wouldn’t rebase its own dividend lower following the demerger.
BHP appointed an independent expert to examine the spin-off plans, who had ruled the benefits of the demerger "clearly outweigh" the disadvantages, it said.
BHP said it expects the demerger to result in one-off costs of around $US738 million before tax. It forecast costs savings of about $US100 million a year from simplifying its portfolio.
BHP 1Y – BHP spin-off to cost $US738m
The filing shows South32 will start life with little debt – less than $US700 million of net debt – as well as a further $US1.5 billion of obligations related to future mine closure costs, which should allow the new company to keep an investment grade rating.
The filing contains more than 1,500 pages of documents, with details on all the assets to be spun-off and the new company’s proforma financial position.
Depending on commodity prices and market sentiment, South32 is expected to start with a market capitalisation of about $US13 to $US15 billion.
That would make it a large operator and probably a target for only one or two rivals – Glencore being one if it fails to grab Rio Tinto a second time round.
Andrew Mackenzie, BHP’s CEO, again justified the spin-off in the ASX filing, saying, "The demerger will create a more focused portfolio of large-scale operated assets with a smaller geographic spread and a higher proportion of common characteristics. With a simplified portfolio we intend to streamline our organisational model, further standardise our common systems and better leverage our technical expertise across our operations.”
BHP shares rose 1.2% to $29.77, with a 2% plus rise in the spot iron ore price overnight Monday probably the major influence on the day.
