BHP Chief to Shed Light On Mining-Spinoff Plan – by Rhiannon Hoyle (Wall Street Journal – February 22, 2015)

Coming Earnings Release Is Also Expected to Highlight Challenges Facing Company

BHP Billiton Ltd. ’s diversification across commodities from aluminum to oil earned it darling status in an industry where many of its rivals were shackled to the fortunes of a single commodity. This week, though, investors expect CEO Andrew Mackenzie to shed more light on his proposal to tack away from that strategy as BHP completes plans for one of the largest spinoffs in mining history.

The release of BHP’s fiscal first-half earnings after the U.S. market closes on Monday will also highlight the challenges facing the Anglo-Australian miner as it carves off better-performing assets such as nickel pits to focus on four commodities including iron ore and oil, the prices of which halved in value last year.

As the slide in some resources markets deepens, investors and analysts have questioned whether the timing is right any longer for a roughly $15 billion demerger that would leave BHP with four units, all of which are forecast to report an on-year decline in first-half earnings.

The miner had long championed the benefits of digging up a variety of commodities, as they often don’t rise and fall in tandem. “The diversification of our portfolio of commodities, geographies and currencies is a key strategy for reducing volatility,” the miner repeated in recent annual reports.

Now, BHP will have to defend its rationale for a planned demerger that will leave it with fewer commodities, lower cash flow, and likely higher net debt, according to J.P. Morgan analyst Lyndon Fagan.

The half year through December was already a challenging one. While BHP produced more iron ore, coal and petroleum, prices of those commodities tumbled.

Demand has been outpaced by a supply surge from mines planned when prices were booming. New production has come at a time when China’s economy is slowing and concerns about global growth are rattling confidence.

J.P. Morgan forecasts first-half earnings from iron ore before interest and taxes have fallen 41% from a year earlier. It projects a 16% drop in copper earnings and an 11% drop in earnings from its petroleum and potash division over the same period.

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