Business
BHP Billiton Ltd. plans to spin-off a third of its current mining operations to South32 at a one-time cost of $738 million. The world's biggest miner released documents on Tuesday detailing the performance of South32's mines and refineries, long overshadowed by BHP's core iron ore, petroleum, copper and coal businesses, ahead of a planned listing in May, reports Reuters. The new mid-sized miner aims to focus on cutting costs and completing the projects in its aluminum, manganese, silver and coal businesses before weighing new investments, despite a strong balance sheet and a market full of assets for sale.
CEO Andrew Mackenzie said it made sense to have two separate companies with different strategies, one focusing on huge assets with hundred-year lives, and the other with shorter-lived assets, processing plants and challenges in South Africa. The simpler asset base would allow BHP to speed up efforts to cut costs and help it beat its target of $4 billion in savings by June 2017, he said, but declined to spell out by how much. South32 will emerge from BHP with $674 million in net debt, which is less than half the level analysts had expected. "They're just trying to be prudent. This company's in some pretty volatile markets, so they just didn't want to over-leverage it," said Brenton Saunders, an analyst at BT Investment Management. Analysts have valued South32 at around $13 billion, or lower if using current weak commodity prices, in line with what the company said was the historical book value of the assets.
The board’s final signoff brought closer what is expected to be one of the biggest corporate separations in mining history, after the world’s largest mining company by market value announced in August its intention to spin off nickel, aluminum and other properties into a new company, reports the Wall Street Journal. Vowing a slimmed down BHP would be more efficient and profitable, the company on Tuesday moved to calm critics of the split amid the slump in global commodity prices. Chief Executive Andrew Mackenzie assured investors that the downturn in the resources market offered perfect timing to divide what he described as “a company within a company.” Mr. Mackenzie said the separation is likely to create two stronger businesses that are more agile amid market volatility.
The new company will be based in Perth and have about 24,000 employees and contractors, about 9,000 of whom will be in South Africa, BHP said, according to Bloomberg. That compares with BHP’s current total of about 128,000. With 12 assets or joint ventures in five countries and producing seven commodities, South32 will include Australia’s Cannington mine, the world’s largest silver and lead operation. It will also be the dominant global manganese ore player, the seventh-biggest alumina producer and the No. 9 nickel company, according to Macquarie Group Ltd. estimates.
