BHP sell-off could undo Billiton historic deal

BHP sell-off could undo Billiton historic deal

Experts believe a demerge could lead ultimately to BHP pulling out of London, delisting its shares and closing its office in the capital to leave it with its original Australian-listed stock and headquarters in Melbourne.

As BHP Billiton (ASX:BHP) (LON:BLT) —the world’s largest mining group formed by one of the industry’s landmark mergers— considers the sale of almost all of the businesses Billiton brought to the 2001 deal, experts say the miner is likely to end up leaving London.

They are not talking in figurative terms. They actually foresee the Anglo-Australian company closing offices in London and delisting its shares to refocus on BHP’s core operations from before the tie up.

CEO Andrew Mackenzie, who took over at the helm a year ago, is expected to decide by the end of the year whether to unload almost all of its non-core units and create a new, listed company or to sell those business off separately.

The unwanted assets make up most of the former Billiton, including the aluminum, manganese and nickel operations, which contribution to the group earnings has fallen from almost 30% at the time of the merger to about 10% today.

The Sunday Times’ columnist Danny Fortson, writes (subs. required) that to say that company is cleanly getting rid of Billiton is just too simplistic.

“The deal allowed it to sell its steel arm and bulk up in key commodities such as copper, yet the new commodities Billiton brought — aluminum, manganese and nickel — last year accounted for less than 1% of earnings. The core of the old BHP, meanwhile, has exploded. Last year the company churned out 217 million tonnes of iron ore from its giant operations in Western Australia and Brazil,” he says.

Based on BHP’s most recent results, the truth is that less than 9% of the mining giant’s capital expenditure was directed towards former Billiton assets in the first half of the company’s financial year.

Simplifying the simplification

The world’s No.1 mining company has been simplifying its portfolio for more than a decade, after the merger with Billiton set it on the way to becoming the world’s most valuable mining company, with a market capitalization over six times greater than when the firms first merged.

BHP sell-off could undo Billiton historic deal

BHP wants to focus on its Australian coal operations as one of its five main pillars. “We probably need more coal, not less,” Mackenzie said recently. (Image courtesy of BHP Billiton).

BHP Billiton has a history of spinning off non-core assets. In 2002, it demerged its steel business, which subsequently became BlueScope Steel.

In May, the company announced a major shake-up of non-core operations beginning with its Western Australian Nickel West business. The news came on the heels of the creation of a new aluminum division, BHP Billiton Aluminum Pty Ltd., which may include other non-core assets such as nickel and bauxite in an $18 billion company.

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

BHP shareholders would have to approve any plan to demerge and spin off its non-core assets in a single unit.