Photographer: Dado Galdieri/Dado Galdieri

BHP's Spinoff Hasn't Worked Out Quite as Planned

  • Demerged miner tracks larger company's share performance
  • Commodities producers see profits slashed amid price rout

BHP Billiton Ltd.’s decision to spin off unwanted assets, including nickel and manganese operations, into the vehicle of South32 Ltd. was intended to allow the world’s biggest miner to focus on delivering gains from top earners such as iron ore and oil.

Since it began trading in May, South32, which houses cast-off businesses from Brazil to South Africa, has traded in line with its parent’s share price. The Perth-based producer had declined 47 percent to Thursday’s close in Sydney, with BHP tumbling 49 percent over the same period. Both have seen profits eroded as prices have plunged on faltering Chinese demand, sending the Bloomberg Commodity Index of returns on raw materials to a 25-year low last month. BHP declined to comment on relative performance of its shares compared with South32.

“The only benefit is that BHP’s results probably would have been even worse if they hadn’t completed the spinoff,” said Sydney-based Fat Prophets analyst David Lennox.

South32, the world’s largest manganese producer, said Thursday it expects to book a $1.7 billion writedown on assets and is seeking to slash costs across a suite of businesses and trim production. BHP last month flagged a $7.2 billion pretax charge against its U.S. shale unit due to the collapse in oil prices.

While the spinoff hasn’t spurred BHP’s shares higher, the producer has achieved its aim of shedding operations that were likely to need further attention and investment to continue production, said Evan Lucas, a market strategist at IG Ltd. in Melbourne. “They weren’t expecting an uplift,” he said by phone. “They wanted to get rid of assets that would have been a capital drag for a long period of time.”

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