BHP polishes up nickel unit as demerger talk swirls

Thu Apr 10, 2014 10:00pm EDT

* BHP has made breakthroughs in the way it processes nickel

* Could make it easier to find buyer for Nickel West division in Australia

* Nickel, aluminium, manganese businesses targeted for disposal

By James Regan

SYDNEY, April 11 (Reuters) - Breakthroughs in the way BHP Billiton processes nickel ores could help the world's biggest miner find a buyer for its ailing Nickel West division in Australia.

Nickel West is among businesses that also include aluminium and manganese which BHP has grouped into a single division set aside in 2012 for underperforming assets deemed non-core to its portfolio.

BHP has said it is actively studying the "next phase of simplification" of the company but declined to comment on media reports that senior executives favoured a demerger.

Chief Executive Andrew Mackenzie has said BHP will focus on its large iron ore, copper, coal and petroleum businesses, while selling off smaller, less profitable operations.

Macquarie Bank last month in a research note put a value of $4.6 billion on the nickel assets.

Improvements in the way BHP mines nickel together with better market dynamics and exploration successes could save Nickel West from closure.

A programme at Nickel West to extract full value from ore that would otherwise be uneconomic to treat due to high contents of talc is opening up more of BHP's rich Mount Keith and Yakabindie deposits in Western Australia for mining, enhancing the potential appeal to outside investors.

BHP is a top-tier nickel producer along with Norilsk of Russia, Brazil's Vale and Glencore Xstrata . Excluding its Cerro Matoso nickel business in Colombia, Nickel West's operations are located in Western Australia, where 8 million tonnes of contained metal are known to exist, a significant portion in large deposits high in talc.

Add to that a discovery the company made last year and dubbed "Venus', which geologists consider among the biggest in the world despite the paucity of information BHP has provided on the find.

TALC-BEARING ORE

High talc-bearing ores require hotter temperatures to melt, lifting smelting costs by 25 percent or more - a key consideration when nickel prices are low.

Studies into treating high talc ores through a filtering process in Australia date back to at least 2005, though it was 2011 before BHP allocated A$177 million ($165 million) to a talc redesign project. By 2012, BHP said it was processing high-talc ore that had been stockpiled awaiting a breakthrough.

Nickel markets are staging a comeback, with pricing up 20 percent since January 1. Driving demand is rising stainless steel production, which relies on nickel for shine and durability, and changes in Indonesia mining laws that has cut off a major supply source for Chinese steel makers.

Nickel West sits outside BHP's designated four "pillars of growth" - iron ore, copper, coal and petroleum products. Potash mining in Canada sits as a potential fifth pillar.

"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," BHP said on April 1.

X2 Resources, an investment vehicle established by Mick Davis, the former chief executive of Xstrata until its merger with Glencore last year has been named by local media as a contender for Nickel West and other BHP businesses.

X2 Resources has up to $3.75 billion in finance and operates a mid-sized diversified mining and metals company. The backers comprise private-equity group TPG Capital and the commodities trader Noble Group and three unnamed sovereign wealth and pension fund investors.

Davis is no stranger to nickel, leading Xstrata into its 2006 acquisition of Falconbridge of Canada as well as takeovers of Australia's Murrin Murrin and Jubilee operations.

If BHP decided to sell businesses separately, smaller Australian nickel companies Sirius Resources and Western Areas could also be contenders to buy.

Sirius plans to start nickel production in 2017 at a rate of 28,000 tonnes a year. Western Areas already delivers nickel concentrate to BHP's Kalgoorlie smelter for processing. ($1 = 1.0712 Australian Dollars) (Editing by Ed Davies)

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