UPDATE 4-BHP announces spin-off plan, no share buyback for now – by Sonali Paul and Silvia Antonioli (Reuters India – August 19, 2014)


MELBOURNE/LONDON, Aug 19 (Reuters) – The world’s biggest mining company, BHP Billiton , announced plans to spin off businesses worth an estimated $16 billion, most of them acquired in a 2001 merger, to focus on its most profitable activities.

But it held off on a share buyback, disappointing investors who had hoped to receive around $5 billion. BHP’s London-listed shares fell 4.5 percent on Tuesday.

Chief Executive Andrew Mackenzie said the widely expected move to simplify BHP around the “four pillars” of iron ore, copper, coal and petroleum – with potash as a potential fifth pillar – would spur cashflow growth and boost returns.

These assets generated 96 percent of the group’s underlying core profit in the 2014 financial year.

“A demerger is a logical next step for other high quality assets also in our portfolio that don’t have a scale of those in our major business,” Mackenzie said in a call with investors.

The spin-off company, dubbed NewCo for now, will bundle BHP’s aluminium, manganese, Cerro Matoso nickel in Colombia, South African energy coal, some Australian metallurgical coal assets and the Cannington silver, lead and zinc mine. It will not include Nickel West in Australia, for which a separate sale process was continuing, Mackenzie said.

“It’s probably a better asset mix than we thought it would be beforehand. BHP has added Cerro Matoso, which is a better nickel asset than its Nickel West division, and Illawara Coal,” said David Radclyffe, an analyst with CLSA in Sydney.

Christopher Moore, portfolio manager of Fidelity Global Industrials Fund, which owns shares in BHP Billiton, said he hoped more focused management and investment would make the hived-off assets perform better.

“Shareholders could benefit from a potential acquisition of all of them by a larger mining company, or part of them, to crystallize value,” said Moore, who plans to hold on to the new company’s shares.

BHP confirmed the spin-off as it reported an 8 percent rise in second-half underlying attributable profit to $5.69 billion due to higher output volume and cost cuts. The figure was just below a consensus analyst forecast of $5.94 billion, according to Thomson Reuters Starmine’s SmartEstimate.

The company said it had cuts costs in the 2014 financial year by $2.9 billion and expected to achieve a further $3.5 billion over the next three years.

Some analysts and investors saw the fall in BHP shares on Tuesday as an over-reaction.

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