BHP Billiton advises approval for the South32 demerger

17 March 2015 (Last Updated March 17th, 2015 18:30)

BHP Billiton has recommended that shareholders approve the proposed spin-off of its new mining group South32.

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BHP Billiton has recommended that shareholders approve the proposed spin-off of its new mining group South32.

South32 has been proposed to manage BHP's non-core assets such as aluminium, coal, nickel, manganese, silver, lead and zinc.

The globally diversified metals and mining company will have the majority of its assets in the southern hemisphere with two regional centres in Australia and South Africa.

BHP expects the total one-off costs of the segmentation to be about $738m.

BHP Billiton chairman Jac Nasser said: "The demerger will simplify BHP Billiton and has the potential to unlock shareholder value, while creating a new global diversified metals and mining company with a significant industry presence in each of its major commodities.

"Following the demerger, BHP Billiton will remain one of the largest, diversified global resources companies and its strategic priorities will not change."

South32 is expected to have a portfolio of quality assets and will begin with a strong balance sheet, be able to adopt an independent business strategy and have the opportunity to pursue growth and investment opportunities.

"Having assessed a number of alternatives, the BHP Billiton board considers the demerger to be the preferred approach to achieving simplification of our portfolio and maximising shareholder value," Nasser added.

"We intend to streamline our organisational model, further standardise our common systems and better leverage our technical expertise across our operations."

"The board unanimously recommends that shareholders vote in favour of the demerger."

This new entity will simplify BHP's portfolio, which has interests in 41 assets across 13 countries and six continents.

It will allow the company to focus on delivering beyond the current $4bn a year by 2017-end target, and is a significant step towards achieving its goal of a core portfolio of 19 assets across eight countries and three continents.

This portfolio comprises petroleum, copper, iron ore, coal and potash assets, which together generated 96% of the group's underlying earnings before interest and taxes (EBIT) in the 2014 financial year.

BHP Billiton CEO Andrew Mackenzie said: "The demerger will create a more focused portfolio of large-scale operated assets with a smaller geographic spread and a higher proportion of common characteristics.

"With a simplified portfolio, we intend to streamline our organisational model, further standardise our common systems and better leverage our technical expertise across our operations."

BHP Billiton believes that the spin-off could generate around $100m a year in savings, with 90% made by the end of 2017.

BHP could face a $55m pre-tax cost in connection with the organisational changes required to achieve these savings.


Image: BHP Billiton CEO Andrew Mackenzie. Photo: courtesy of BHP Billiton.