BHP Billiton Mulls Assets Spinoff

LONDON (The Deal) -- Anglo-Australian mining company BHP Billiton (BHP) on Tuesday signaled the possibility of bundling noncore assets into a demerged business, among other options for divestment and "simplification."

Melbourne-based BHP said it was studying the next phase of the simplification of its portfolio, "including structural options," but any course of action remained "subject to detailed review and an assessment of alternatives." The company said it would "only pursue options that maximize value for BHP Billiton shareholders."

The cautious and carefully worded statement followed speculation in the Australian media that BHP is considering spinning off its nickel, manganese and aluminum businesses into a separate unit. A report in the Australian Financial Review said the demerged company could be worth up to A$20 billion ($18.5 billion).

A spokeswoman for BHP in London declined to go beyond what was in the statement, saying that the company had been looking at options around simplification "for a couple of years" and pointing out that the group has already made divestments in Australia, the U.S., Canada and the U.K., including petroleum, copper, coal, mineral sands, uranium and diamonds assets. She declined to comment on the Australian Financial Review's report that Goldman, Sachs & Co. has been appointed to develop the spinoff proposal.

BHP said: "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. By increasing our focus on these four pillars, with potash as a potential fifth, we will be able to more quickly improve then productivity and performance of our largest businesses."

Shares in London-listed BHP Billiton plc, the U.K. component of the dual-listed entity, were up 43.5 pence, or 2.4%, by the end of the morning at 1,887.5 pence. At that price, the company had a market capitalization of 107.87 billion pounds ($179.51 billion). Deutsche Bank AG on Tuesday reiterated a buy recommendation on BHP's stock, raising its target from 2,450 pence a share to 2,500 pence.

Since taking over from Marius Kloppers early last year, BHP CEO Andrew Mackenzie has stressed the importance of shareholder returns and efficiency. When the company announced its first-half results in February, it said underlying Ebit increased by 15%, to $12.4 billion, in the six months to Dec. 31, and underlying attributable profit increased by 31%, to $7.8 billion.

Mackenzie attributed the uptick to "substantial improvement in productivity and additional volume from the company's low-risk, largely brownfield investment program," and a commitment to "deliver more [metric tons] and more barrels from our existing infrastructure at a lower unit cost." He also said that he expects net debt of $27.1 billion at the end of December to fall to about $25 billion by the end of the financial year.

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