November 26, 2015

BHP Billiton reverses consolidation

BHP Billiton announced in August it is spinning off key assets that were assembled in the 2001 merger that created the mining giant. The company, which currently operates a global portfolio of 41 investments, will concentrate future efforts on aluminum, coal, manganese, nickel and silver projects, which account for 95 percent of its current earnings before interest, depreciation and taxes.

BHP Billiton documents list “six major operated assets” that it will maintain in the coming demerger. These include Western Australia Iron Ore, Queensland Coal, New South Wales Energy Coal and Olympic Dam in Australia, and the Escondida and Pampa Norte copper mines in Chile.

According to Darren Sissons, an analyst with Portfolio Management Corp., the company’s non-core assets will be moved into a separate holding company. Proceeds to shareholders will likely be in the form of dividend shares in the new subsidiary.

The Jansen deposit, BHP Billiton’s key Canadian holding, is unlikely to be significantly affected. According to the briefing document, the move “would not alter BHP Billiton’s position as the … developer of the world’s best undeveloped potash resource in Saskatchewan.”

Like many businesses that are having trouble meeting shareholder demands for ever higher revenues and profits BHP Billiton is counting on financial moves, such as the proposed asset shuffle, to boost shareholder value. That said, according to Levine, the improving global economy should boost demand for BHP Billiton’s key minerals in emerging markets and the Jansen potash business is expected to become an increasingly important part of the global food value chain going forward.

If shareholders and regulators approve the proposal, the company expects the spinoff to be completed by the first half of 2015. – Peter Diekmeyer

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