The world’s largest mining company BHP Billiton is offloading some smaller assets into a new company that will join the local share market in 2015.
BHP is demerging the majority of its aluminium, coal, manganese, nickel and silver assets into the new entity, dubbed NewCo, but left the door open for the sale of its West Australian nickel and US coal assets.
The announcement came as BHP lifted its full year profit 23 per cent to $14.93 billion, broadly in line with market expectations.
“The demerger is unquestionably the best option,” chief executive Andrew Mackenzie said.
“We’ve been wanting to concentrate BHP Billiton on our four pillars of iron ore, coal, copper and petroleum, and that effectively meant that long-term the other businesses we would seek to exit.”
“In some cases, like Nickel West and also some of the recent transactions we’ve been doing with the US coal business, we favour trade sales.”
He also confirmed BHP is considering selling its New Mexico coal business in the US and some smaller petroleum assets.
With a simpler portfolio, BHP is targeting additional savings of at least US$3.5 billion per annum by the end of the 2016/17 financial year.
Assets selected for the new company include Illawarra Coal in NSW, Queensland’s Cannington silver mine, a manganese mine in the Northern Territory, an alumina refinery in Western Australia, plus other operations in South Africa, Mozambique and Colombia.
Analysts said the assets being demerged contributed a very small portion of BHP’s earnings in 2013/14, but were likely to improve in line with improving market conditions.
The new company’s headquarters will be in Perth, while a regional office will be located in Johannesburg.
It is expected to be listed on the Australian share market by mid-2015, and have a secondary listing in South Africa, due to its coal assets there, and BHP’s desire to be “a champion for Africa”, Mr Mackenzie said.
The demerger would not alter the company’s dividend payout policy, or its commitment to adding potash as a potential fifth pillar of the company, he said.
Fat Prophets analyst David Lennox said BHP had chosen to demerge assets because cash was no longer critical.
“They don’t need to generate cash from the sales but they do need to get a slightly lazy balance sheet into better shape,” he said.
BHP’s profit growth was driven by higher production and lower costs.
Mr Lennox said the company had done well in reducing costs, and had been assisted by currency movements and better than expected commodity pricing.