BHP Billiton has confirmed that it will split the company and spin off its second tier assets into a new corporation.
In an announcement to the Australian Securities Exchange on Friday, the world’s biggest mining group confirmed long running speculation about the split, saying it had explored whether to sell its “non-core” assets or house them in a new company and had opted for a demerger.
“We believe that a portfolio focused on our major iron ore, copper, coal and petroleum assets would retain the benefits of diversification, generate stronger growth in cash flow and a superior return on investment,” the company said.
“By increasing our focus on these four pillars, with potash as a potential fifth, we will be able to more quickly improve the productivity and performance of our largest businesses.”
The company is expected to reveal more details of the plan when it releases its full year results on Tuesday but speculation is that the new company would be headquartered in Perth with a mixture of the company’s South African businesses and the Australian nickel, manganese and aluminium assets.
Investors immediately approved the concept with BHP shares lifting 2.3 per cent after the announcement, and settling 89c higher at $39.05 after peaking at $39.20.
The proposed new company is likely to have assets worth between $14 billion and $20 billion, making it one of Australia’s largest mining groups.
But it would still be dwarfed by BHP which today is valued at almost $202 billion.
“BHP Billiton has been simplifying its portfolio for over a decade and is pursuing options to make the company simpler and more productive,” the company said.
Management of the new group is yet to be announced but reports earlier today suggested BHP’s chief financial officer Graham Kerr was likely to take the helm.
After a decade of expansions and multi-billion-dollar takeovers, BHP and its rivals like Rio Tinto shifted into cost-cutting mode almost two years ago when it became apparent that the heady days of the resources boom were behind them.
Along with cost cutting and a search for efficiency, they have been desperately seeking buyers for lower quality assets in a bid to deliver better returns to shareholders.