BHP Billiton splits in half, demerges its assets

BHP Billiton has announced a massive shift in the company, announcing that it will spin out approximately half of its existing assets in to a new company.

In a company announcement released today BHP said it “plans to create an independent global metals and mining company based on a selection of its high-quality aluminium, coal, manganese, nickel, and silver assets”.

The company has been imaginatively dubbed NewCo for now, and headquartered in Perth.

BHP CEO Andrew Mackenzie stated that BHP will retain its four pillars of iron ore, copper, coal, and petroleum, which are comprised of 19 assets and accounted for 96 per cent of the miner’s underlying EBIT in 2014.

Australia has come out relatively well in the split, with Western Australian iron ore and the Olympic Dam copper mine remaining in the mix.

Coal wise BHP will retain its Queensland (both BMA and BMC operations) and NSW coal assets, but has stated it will demerge its Illawarra metallurgical coal assets which include the Dendrobium, West  Cliffs, and Appin mines.

Other Australian assets to be spun out include the Cannington operation and the alumina refineries at Worsely.

In regards to manganese the Northern Territory GEMCO mine and the TEMCO alloy operations will also be included in New Co.

However it added that it is continuing to review its Nickel West operations.

Approximately 24 000 workers will be spun out in to the company built out of these new assets.

Commenting on the demerger BHP Billiton Jac Nasser said “we believed the proposed demerger, if implemented, will accelerate the simplification of the group’s portfolio”.

He went on to say the chairman of this new company will be David Crawford, with current BHP CFO slated to head the business, as well as other changes in the existing BHP management team.

BHP CEO Andrew Mackenzie added: “In a single step we will significantly increase BHP Billiton’s focus on the exceptionally large resource basins that underpin its competitive advantage

The move had been signalled by the market last week following the miner’s announcement of a portfolio simplification to make the company “simpler and more productive”.

BHP revealed plans to pull out of West African operations in March, prompted by a significant drop in the price of iron ore to $80 per tonne.

On April 1 BHP announced its plans to demerge non-core assets such as nickel, manganese and aluminium, many of which were acquired in the merger with London-listed Billiton in 2001.

It explained that by “separating these businesses via a demerger it has the potential to unlock shareholder value by simplifying the group and creating two portfolios of complementary assets”.

However Mackenzie did add that “the assets that will form the new company are not of the same size as those in our major basins, but many are among the largest and highest quality in their sectors”.

“We believe they will be more valuable in a purpose built, independent company than they would be in BHP Billiton.”