Mining giant BHP Billiton announced plans to demerge its aluminium, coal, manganese, nickel and silver assets into an independent metals and mining company.
Chairperson Jac Nasser said the proposed demerger, if implemented, would accelerate the simplification of the group’s portfolio, provide investors with choice and unlock value in both companies.
“Our shareholders will have the opportunity to vote on this proposal once the necessary approvals are in place,” Nasser said.
The assets selected for the new venture would include the Cannington silver mine, in Australia, the manganese division, which includes the Gemco operation in Australia and the Hotazel mine, in South Africa, as well as the Temco and Metalloys assets.
The aluminium division would also be incorporated into the new venture, bringing with it the refineries in Worsley, Australia, Hillside, South Africa and Mozal, in Mozambique, as well as non-operated interest in bauxite, alumina and aluminium assets in Brazil.
The Illawarra coal operations, in Australia, the coal projects in South Africa and the Cerro Matoso ferronickel operations in Colombia would also be spun-out.
“The demerger will create an independent metals mining company with assets in five countries, and more than 24 000 employees and contractors worldwide. Its assets may not have the same scale as those in BHP’s major basins, but they are built to BHP standards and are some of the largest and most competitive in their industries,” said BHP CEO Andrew Mackenzie in a conference call.
“For BHP Billiton, it will simplify the portfolio in a single step – with pure assets and a focus on our major resource basins we can improve productivity more quickly and become an even higher margin, higher return business.”
Once simplified, BHP would be nearly exclusively focused on its iron-ore, copper, coal, petroleum and potash basins, and with fewer assets, the company would be able to reduce costs and improve productivity of its largest businesses more quickly.
“With a simpler portfolio, we are targeting sustainable, productivity-led gains of at least $3.5-billion a year by the end of the 2017 financial year,” Mackenzie added.
BHP’s current CFO, Graham Kerr, would be appointed CEO of the new company, which would likely have a secondary listing on the JSE, given its significant number of assets in that country.
If the demerger was approved, Kerr would retire from the group management committee on October 1, and would be replaced as CFO by PeterBeaven, the current president of the copper division.
“The new company would have a culture, processes, organisational structure and systems to suite the scale of its operations, with a regional operating model to bring us closer to communities in Australia, Southern Africa and beyond,” Kerr said on Tuesday.
“I’m very confident it will perform competitively from inception.”
Mackenzie said the demerger proposal would offer more value for shareholders than other divestment options, taking into account the certainty of outcome, associated costs and the time to implement, as well as the risks involved with third party approvals.
A final board decision on the demerger would be made once all the necessary government, taxation, regulatory and third party approvals were secured, and once shareholders have had a chance to vote on the proposal.