BHP Billiton Ltd. (BHP), the world’s biggest mining company, is studying the next step in simplifying its portfolio to focus on iron ore, copper, coal and petroleum after a two-year campaign of global asset sales.
Options include spinning off its aluminum, nickel and bauxite assets in a A$20 billion ($19 billion) deal, the Australian Financial Review reported today. The simplification is a priority, Melbourne-based BHP said today in a statement, without directly commenting on a possible spinoff.
BHP and Rio Tinto Group have been leading a global push for asset disposals as mining companies focus on their most profitable operations after a decade-long boom in metal prices waned. BHP confirmed in March last year that it was planning to sell about 10 assets as $48 billion of mines and businesses hit the global market with for-sale signs.
“It probably tells you that a trade sale of some of those assets is proving more difficult than BHP would like,” said Tim Schroeders, a Melbourne-based money manager who helps oversee about A$1.1 billion in equities at Pengana Capital Ltd., including BHP shares. “Going to the markets would allow BHP to rule a line under some of these businesses and might be a nice neat fit.”
BHP rose 1.6 percent to A$37.05 in Sydney. The stock has dropped 2.5 percent this year. It advanced 2.1 percent to 1,882 pence in London.
BMO Capital Markets estimates the value of assets that could be sold at $10.7 billion, or 125 pence a share. If the company’s power station coal assets are also included, the valuation increases to $20.6 billion, or 240 pence a share, analyst Tony Robson wrote today in a note to clients.
BHP has booked impairment charges on the Nickel West assets of almost $1.6 billion in the past two fiscal years after prices for the metal fell. The operations produced 103,300 metric tons in fiscal 2013. The assets include the Mount Keith open-cut mine and concentrator, two underground mines and smelting plants at Kalgoorlie and Kwinana.
“We continue to actively study the next phase of simplification, including structural options, but will only pursue options that maximize value for BHP Billiton shareholders,” the company said in its statement. Potash may be the fifth element of the future portfolio, it said.
A team advised by Goldman Sachs (GS) Group Inc. is working on a number of options, including a demerger and individual asset sales, according to the Financial Review report. Sydney-based Goldman Sachs spokeswoman Hayley Morris declined to comment.
Run for Cash
BHP Chief Executive Officer Andrew Mackenzie flagged in an interview in August that the company would further trim its portfolio. He told an earnings call later in the month that the nickel and aluminum businesses were run for cash and received no major capital investment. Mackenzie said in February that they were performing well.
“The market puts limited value on those assets inside the BHP portfolio,” UBS AG analyst Glyn Lawcock said by phone from Sydney. A spinoff would benefit investors as they would “get equity in a business that will trade at some value on the market.”
BHP divested its steel long products to form OneSteel Ltd. in 2000, now known as Arrium Ltd., and demerged the rest of its steel business in 2002 to create a company later renamed BlueScope Steel Ltd.
In the past 24 months, BHP has completed asset sales worth $5.2 billion, according to data compiled by Bloomberg. The Pinto Valley copper mine in the U.S. was sold last year for $650 million to Canada’s Capstone Mining Corp., following sales of a Canadian diamond mine, an Australian uranium project and a stake in a gas field in the Browse basin in Australia.
BHP’s aluminum, manganese and nickel assets would be worth about $15 billion in 2014, according to an estimate by Royal Bank of Canada Capital Markets in a Dec. 5 note to clients.
With major producers seeking to divest some parts of their businesses there may be fewer buyers for BHP’s non-core assets, according to Pengana’s Schroeders. Glencore Xstrata Plc, the global commodity trader and metals producer run by billionaire Ivan Glasenberg, said last month it was studying a bid for BHP’s Australian nickel assets.