COLUMN-BHP’s “unloved” assets may be better long-term bet – by Clyde Russell (Reuters U.K. – April 14, 2014)

LAUNCESTON, Australia, April 14 (Reuters) – “Unloved” was a word that popped up several times in relation to BHP Billiton’s mooted plans to spin-off its non-core aluminium, nickel and manganese businesses.

It’s worth looking at the language used to describe and frame corporate plans as this is more often revealing that the bland statements companies tend to issue.

BHP Billiton didn’t use the word “unloved” itself, that was the description applied by news outlets, among them Reuters, the Sydney Morning Herald and the Wall Street Journal.

What BHP Chief Executive Andrew Mackenzie did say was the world’s largest mining company was looking at a range of options in the “next phase of simplification,” but would only pursue those that enhanced shareholder value.

BHP has identified four key pillars of its business – iron ore, copper, coal and petroleum – with potash a potential fifth. This leaves the so-called unloved assets as aluminium, alumina, bauxite, nickel and manganese.

These businesses could be spun out of BHP into a separate entity, just as the company did with its Australian steel assets more than a decade ago, according to news reports.

The theory would appear to be that this would allow BHP to focus on the large profit generators while cutting loose assets that act as a drag on the balance sheet and share price.

BHP’s Australian-listed shares have fallen almost 1 percent since the start of the year to the close of A$37.62 ($35.36) on April 11.

Meanwhile, the S&P GSCI index of commodities, a good proxy for BHP as it contains both energy and minerals, has gained 3.2 percent so far this year.

If you go back to the middle of 2012, around the time BHP changed direction by committing to curtailing capital spending and return more to shareholders, the picture is different.

Since the 2012 low reached on July 18, BHP shares have gained 24.6 percent while the S&P GSCI has managed 16.7 percent since its 2012 low, reached on June 21.

But BHP has significantly underperformed more general equities, with the Australian benchmark ASX 200 index gaining 36 percent since its 2012 low, reached in June of that year.

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