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BHP Billiton spin-off = good value

Observers of South Africa’s mining scene tell Mineweb BHP’s reported plans for a spin out company could go over well for shareholders.

By unbundling aluminium, nickel and bauxite and some other less-profitable assets into a new publicy-listed company, BHP Billiton (LSE: BLT; NYSE: BHP) may create more value for shareholders, mining experts in South Africa told Mineweb on Wednesday.

Peter Major, a mining consultant at Cadiz Corporate Solutions, said BHP’s non-core assets detract more from the company’s profitability than add to it.

Out of 10 businesses in the company, there are four laggards that reportedly include coal and aluminium operations in South Africa. The under-performing assets, Major said, generate little value for BHP shareholders, but might do so in a new publicly-listed company.

As reported earlier this week by AFR in Australia, BHP is said to be considering this scenario, comprising some US$20 billion in BHP operations. As part of long-stated plans, BHP has already started to sell off some of its assets. But AFR‘s report was the first to go into detail on a possible plan to create a new resource company with possible listings in England, Australia and South Africa.

See: AFR’s Break: BHP may carve out new company with $20B in assets and BHP Billiton weighs spin-off of unloved assets

Shares in the new company would go to BHP shareholders, it is said.

BHP Billiton gets money from eight or nine different sources of which some make large profit margins and others don’t,” Major said. “So a logical step is to get rid of the ones that are not making much or any money.”

Major noted that if BHP spun off its less important assets into a separate company, shareholders would be left with both a high- and low-margin share. Shareholders could then do whatever they wanted with each, putting them in a better position than they were before the spin off of assets, Major said.

Asked if BHP’s divestments would impact South Africa’s employment sector, one that is already under strain with ongoing strikes, Major said there would probably be little change in the first year or so after any sell-off or spin-out. 

But if it was difficult to re-store profitability to assets that were loss making, then among other options employment cuts would have to be considered, especially if the commodity cycle is under continued pressure, suggested Major.

In a press release Tuesday – after AFR’s story came out – BHP noted it had completed divestments in Australia, the United States, Canada, South Africa and the United Kingdom, in order to focus on its core petroleum, copper, coal, uranium and mineral sands businesses.

Stephen Meintjes, of Imara SP Reid, noted that talk of BHP Billiton leaving South Africa has been speculated for a long time.

Goldman Sachs is BHP’s advisor on its overall divestment plans.


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