BHP announces spin-off plan, no share buyback for now

Tue Aug 19, 2014 2:22pm EDT
 
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By Sonali Paul and Silvia Antonioli

MELBOURNE/LONDON (Reuters) - The world's biggest mining company, BHP Billiton, announced plans to spin off businesses worth an estimated $16 billion, most of them acquired in a 2001 merger, to focus on its most profitable activities.

But it held off on a share buyback, disappointing investors who had hoped to receive around $5 billion. BHP's London-listed shares fell 4.5 percent on Tuesday.

Chief Executive Andrew Mackenzie said the widely expected move to simplify BHP around the "four pillars" of iron ore, copper, coal and petroleum - with potash as a potential fifth pillar - would spur cashflow growth and boost returns.

These assets generated 96 percent of the group's underlying core profit in the 2014 financial year.

"A demerger is a logical next step for other high quality assets also in our portfolio that don't have a scale of those in our major business," Mackenzie said in a call with investors.

The spin-off company, dubbed NewCo for now, will bundle BHP's aluminum, manganese, Cerro Matoso nickel in Colombia, South African energy coal, some Australian metallurgical coal assets and the Cannington silver, lead and zinc mine.

It will not include Nickel West in Australia, for which a separate sale process was continuing, Mackenzie said.

"It's probably a better asset mix than we thought it would be beforehand. BHP has added Cerro Matoso, which is a better nickel asset than its Nickel West division, and Illawara Coal," said David Radclyffe, an analyst with CLSA in Sydney.   Continued...

 
A promotional sign adorns a stage at a BHP Billiton function in central Sydney August 20, 2013. REUTERS/David Gray