It will cost BHP Billiton $US738 million to spin-off its non-core assets into new company South32, but it assures that shareholders will be better off as a result of the deal.
South32 will be made up of BHP’s Illawarra and South African coal mines as well as a number of aluminium, manganese, nickel, silver, lead and zinc operations valued at around $US26.723 million.
This will leave BHP to focus on what it calls its five pillars of iron ore, copper, coal, potash, and oil.
Revealing details of the proposed demerger this morning, BHP said the $US738 million would be made up of one-off costs such as stamp duty and cash tax, separation costs, and execution costs.
However the miner said the value of the cost savings from portfolio simplification would more than pay for the demerger costs.
The board has recommended shareholders vote in favour of the demerger plan at a special meeting to take place on May 6.
It said that eligible shareholders will receive one South32 share for every BHP share, and reiterated its commitment to not rebase its dividend following the demerger.
Meanwhile, South32 is targeting a return of at least 40 per cent of underlying earnings to shareholders in the form of dividends.
BHP chairman Jac Nasser said South32 ‘s portfolio of high quality assets will benefit from the focus of a dedicated board and management team.
“South32 will begin with a strong balance sheet, will be able to adopt an independent business strategy and will have the opportunity to pursue growth and investment opportunities that may not otherwise be pursued if its assets remain within BHP Billiton.”
For BHP the plan will mean the simplification of the company’s core portfolio to 19 assets across eight countries.
“The demerger will create a more focused portfolio of large-scale operated assets with a smaller geographical spread and a higher proportion of common characteristics,” BHP CEO Andrew Mackenzie said.
“With a simplified portfolio we intend to streamline our organisational model, further standardise our common systems and better leverage our technical expertise across our operations”.
BHP predicts this simplification will save it over $US100 million a year.
South32’s head office will be in Perth, with offices also located in Johannesburg.
Chief executive elect of South32 Graham Kerr said the company intended to create a culture which would “empower our people”.
“We are building a company from the ground up. We will have competitive assets, significant reserve lives, and financial strength,” Kerr said.
“South32 will continue to prioritise safety above all else as we implement our tailored strategy and regional operating model that we believe will lower costs and improve productivity."