GLOBAL resources group BHP Billiton’s plans to spin off noncore businesses estimated to be worth $16bn — including most of its assets in SA — will create a new company with flexibility to seek growth opportunities in Southern Africa and elsewhere.
Billiton CEO Andrew Mackenzie on Tuesday confirmed weeks of detailed speculation about Billiton’s plans to dispose of assets that did not fit in with its focus on large, long-life resources in iron ore, copper, coking coal, petroleum and potash.
It has been widely speculated for some time that Billiton wanted to sell its coal mines and aluminium smelters in SA. Its demerger decision follows recent or planned sales of South African assets by other global resources giants such as Rio Tinto and Anglo American. SA’s attractiveness has faded due to electricity shortages, labour unrest, a weakening currency and uncertainty over how coal will be regulated as a "strategic mineral".
Momentum Asset Management portfolio manager Simon Hudson-Peacock said he believed these issues were material but largely coincidental. The reason Billiton was demerging th e assets was that they were not generating the required rates of return for the group. Given the other uncertainties of operating in SA, the local assets were absorbing too much of Billiton’s management time in relation to the returns they were generating, he said.
The announcement of the results and demerger was followed by a 5.4% drop in Billiton’s share price on the JSE to R347.50.
This fall was mainly a reaction to the lack of a special dividend, analysts said. The group reported a 10% rise in underlying attributable profit for the year to June to $13.4bn.
The new entity, Newco, of which Graham Kerr will be CEO, will house the aluminium and manganese businesses. These include aluminium smelters in SA and Mozambique; the Cerro Matoso nickel business in Colombia; the thermal coal mines in SA; and the Illawarra Metallurgical Coal and Cannington silver, lead and zinc mines in Australia. The company is also considering the disposal of its Nickel West, New Mexico Coal and smaller petroleum assets.
Newco will be headquartered in Perth with its primary listing on the Australian Stock Exchange and an inward secondary listing on the JSE. BHP Billiton will retain its JSE listing, and listings in London and Australia.
Kagiso Asset Management investment analyst Rubin Renecke said the new company would contain assets that were not making great returns but were still sizeable in a global context, even though they were not sizeable in the BHP Billiton portfolio. "Commodities are cyclical by nature and while the suite of commodities in the new company is not delivering high margins, the future may be different."
Mr Mackenzie said about half of the companies in Newco were Australian, and a third were in Southern Africa.
"We are not divesting from SA, it is a demerger," he said. "Billiton retains about 9% of its shareholders in Southern Africa and will continue to explore for oil and gas in SA. Newco has a lot of South African assets in it which will establish a position for more success. We believe in SA and we believe in its future. This is a way of supporting it more strongly."
"Our confidence in SA is reflected in some of the decisions we have made, such as listing the new company on the JSE to give investors another choice," Mr Kerr said.