South32 looks better bet than parent BHP Billiton by Clyde Russell (Reuters U.S. – March 17, 2015)

http://www.reuters.com/

LAUNCESTON, Australia – (Reuters) – BHP Billiton has done a great job in making its spin-off South32 look attractive, perhaps to the point where it may be a better bet than its parent.

The world’s largest miner released documents on Tuesday outlining details for the new company, which will take over BHP’s aluminum, manganese, nickel, silver and some coal assets.

These assets are often described in the media as “unloved,” but the outlook for many of them is better than the core of iron ore, petroleum, copper and metallurgical coal that will remain with BHP. South32, so named for the line of latitude that links its main operating centers of South Africa and Australia, will get a head start from its parent.

The new company will assume only $674 million in net debt, about half the level analysts had expected, providing a boost to the management should they decide to pursue mergers and acquisitions. Analysts expect the new company, which will list in Australia, the United Kingdom and South Africa, will be worth up to $13 billion.

The South32 assets contributed net profit after tax of $738 million to BHP for the half year to December 2014, again an upside surprise that bodes well for the new company’s reception.

The documents also state that South32 intends to pay out at least 40 percent of its underlying earnings in dividends each half year.

This is a further sweetener and makes South32 attractive to investors chasing dividends over capital growth, such as some pension funds.

Assuming BHP shareholders approve the demerger in a vote on May 6, the new company will list on May 18.

Overall, the picture that emerges from the documents is of a company with low debt, solid earnings and with assets well-positioned on the cost curves of the industries in which they operate.

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