The Strategist

BHP reveal next steps for its spin-off company

03/17/2015 - 04:42

BHP reveal next steps for its spin-off company
Australia-based world’s biggest mining company BHP Billiton has announced the next steps for its newest spin-off, South32, noting that much less debt would be shelved off to the company when it lists in May.

The new company South32’s detailed assets and their performance were announced in a report. The assets including aluminum, manganese, nickel, silver and coal were overshadowed by the growth in the parent company’s iron ore, petroleum, copper and metallurgical coal businesses.

According to BHP Chairman Jac Nasser, the demerger will simplify BHP Billiton and has the potential to unlock shareholder value, while creating a new global diversified metals and mining company with a significant industry presence in each of its major commodities.

Company Chief Executive Andrew Mackenzie also added that in the longer term, BHP would be better placed to achieve "substantial productivity gains beyond the $4 billion per annum already targeted" by the end of 2016-17.

This demerger announcement noted that the new company will pay out at least 40 percent of its underlying earnings in dividends each half-year while it will not pay a dividend for the current financial year. The net debt meanwhile is noted to be around $674 million, almost half of what analysts expected the company to own.

The new company is valued at around $13 billion, or lower if using current weak commodity prices. BHP said the historical valuation on the invested capital was $12.95 billion. The total one-off costs of implementing the demerger are estimated to be around $738 million. The company will have around
$2.2 billion worth of balance sheet items to ensure that the new company will start with a manageable debt. 

Shareholders will vote on the spin-off on May 6 and the company’s shares are expected to list on the Australian, Johannesburg and London stock exchanges on May 18.

Meanwhile, BHP has also announced a plan to cut its pre-tax cost base by a further $US100 million, with 90 per cent of the effort to be complete by June 30, 2017.