BHP Billiton mulls spinning off non-core divisions into $18bn firm

Mining giant BHP Billiton (ASX, NYSE: BHP) (LON: BLT) revealed Tuesday it’s considering spinning off its nickel, manganese, and aluminum businesses into a separate unit, with the purpose of boosting shareholder returns.

Answering to market speculation about its plans to sell its slower growing non-core units, the Anglo-Australian miner acknowledged it was studying the next phase of its “simplification” strategy, which included structural options.

“We believe that a portfolio focused on our major iron ore, copper, coal and petroleum assets would retain the benefits of diversification, generate stronger growth in free cash flow and a superior return on investment,” the company said.

In December last year, CEO Andrew Mackenzie had anticipated that all of the company’s upcoming decisions would be based on what he called its "four key pillars": coal, iron ore, petroleum and copper.

“By increasing our focus on these four pillars, with potash as a potential fifth, we will be able to more quickly improve the productivity and performance of our largest businesses."

Today’s statement comes on the heels of an article by the Australian Financial Review hinting that BHP had appointed Goldman Sachs to develop a proposal to spin off its non-core assets into a separate company that could be worth up to US$18 billion (A$20bn), and listed on the London Stock Exchange, as well as the Australian and South African markets.

The world’s No. 1 miner added in its statement that portfolio simplification was a priority that it has been pursuing for several years.

“In the past two years alone, the group has announced or completed divestments in Australia, the US, Canada, South Africa and the UK, including petroleum, copper, coal, mineral sands, uranium and diamonds assets,” it said.

“Any course of action remains subject to detailed review and an assessment of alternatives.”

As part of the circulating rumours, it is said that Mick Davis’ new company would be quite keen on bidding for any assets that Mackenzie may want to offload, especially after the former Xstrata boss said yesterday that he had $3.75 billion to invest in buying reasonably priced projects.