BHP Billiton is considering spinning off its nickel, manganese, and aluminium businesses into a separate unit as a way to boost shareholder returns amid an industry-wide drive to increase efficiency.
The Anglo-Australian miner said on Tuesday that it was studying the next phase of its “simplification” strategy, which included structural options, in response to speculation about its plans to sell its slower-growing non-core units.
“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,” BHP said.
“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.”
Shares in BHP climbed 1.5 per cent to A$37.04 following the announcement made to the Australian stock exchange
The statement came after the Australian Financial Review reported 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 A$20bn, and listed on the London, South African and Australian stock exchanges.
BHP – the world’s largest mining company by market capitalisation – and other global miners are on a drive to boost shareholder returns and efficiency after disappointing investors in recent years.
Since his appointment as BHP chief executive last year, Andrew Mackenzie has stressed that he would actively manage the company’s portfolio of businesses to boost shareholder returns.
BHP recently sought buyers for its Nickel West operation in Western Australia.
“The rationale for spinning off the assets comes down to capital allocation and the tension between the desire to boost shareholder returns and invest in new projects,” said a senior banker who asked not to be named.
“It is more efficient to release these non-core assets, which are not a priority for BHP, which can then seek capital on the market.”
Goldman Sachs declined to comment on whether it had been appointed by BHP to explore a spin-off.
In its statement, BHP said the simplification of its portfolio 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 added.
“Any course of action remains subject to detailed review and an assessment of alternatives.”
Glyn Lawcock, UBS analyst, said: “BHP has already made it clear these assets are non core and have become a distraction. By focusing attention on its core business, the company probably feels it can generate better earnings growth.”
Mr Lawcock said distributing shares in a newly demerged business to existing BHP shareholders may prove a less risky option than attempt an initial public offering for a separate business. He said it may not be easy for BHP to sell off the large number of non-core businesses it has on its books.
BHP has a history of spinning off non-core assets. In 2002, it demerged its steel business, which subsequently became BlueScope Steel.
BHP shareholders would have to approve any plan to demerge and spin off its non core assets in a single unit.