(Repeats story published late Friday; no changes to text)
* Likely to include aluminium, manganese, nickel
* Many of the assets came to BHP from Billiton merger
* Shareholders welcome the announcement
* Shares up 2 pct, outperform UK mining sector
By Sonali Paul and Silvia Antonioli
MELBOURNE/LONDON, Aug 15 Diversified mining
company BHP Billiton declared its preference for a demerger of
its aluminium, manganese and nickel assets on Friday, setting
the stage for the formation of a separate business that could be
worth at least $12 billion.
BHP said its board was considering a
spin-off at meetings ahead of its annual results announcement
next week. An Australian newspaper said those plans were well
advanced and would include the Nickel West business that the
world's biggest miner has been trying to sell.
"A demerger of a selection of assets is our preferred
option," the company, which has a market capitalisation of $185
billion, said in a statement to the Australian stock exchange.
BHP has long aimed to sell or spin off its manganese,
aluminium and nickel assets, which contribute little to its
earnings. Simplifying the company would "generate stronger
growth in cash flow and a superior return on investment", it
said on Friday.
Some of the largest shareholders in BHP welcomed the
"It's good to see BHP taking the lead in the sector on this.
It reassures you as a shareholder. It makes me more willing to
have it as a significant bet within my fund," said Christopher
Moore, portfolio manager of Fidelity Global Industrials Fund.
"Really we should see more of this in the mining sector. I
would expect others to take BHP's lead. Rio Tinto, Anglo
American could also follow suit in doing this."
BHP's rivals Anglo American and Rio Tinto
have both said they would focus on the parts of their
portfolio that can deliver higher return.
BHP is likely to offload between $1.0-2.7 billion of its
debt to the new vehicle, according to analysts. Any more than
that could be challenging to handle for a company that relies on
assets whose profitability can be volatile.
Its net debt as of Dec. 30 was $27.1 billion.
Shares in BHP were up almost 2 percent by 1511 GMT,
outperforming a 0.6 rise in an index of London-listed mining
IRON ORE DRIVES BHP PROFITS
BHP is relying on iron ore for the lion's share of fiscal
2014 earnings after beating its own guidance for full-year
"Spin-offs have the potential to crystallise value that the
market may not have been able to see," said Neil Boyd-Clark, a
portfolio manager at Arnhem Investment Management, which owns
shares in BHP.
The Australian Financial Review (AFR) newspaper said the
separate company would comprise BHP's aluminium, manganese,
nickel, Cannington silver mine and South African energy coal
assets and would be worth $14 billion.
Analysts were divided over the precise value of those
assets, with estimates ranging from $12 billion to $23 billion.
BHP was also debating whether to spin off its coal assets in
New South Wales, the AFR said, without citing any source. The
new company would be based in Perth and led by BHP's Chief
Financial Officer Graham Kerr, it said.
It would have a primary listing on the Australian stock
exchange and was likely to take a secondary listing in South
Africa, the AFR added.
BHP declined to comment on the AFR report.
"Whether to list in Australia and South Africa will be a
marketing decision. It's a question of matching the investor
base," said a banker familiar with BHP's thinking. "Looking at
the base metals space you don't have many listed names in
Australia. And in South Africa, you can tap some money from
pension funds who can only invest in rand."
Analysts and investors expect BHP to offer its existing UK
shareholders - some of which may not have a mandate to own
shares in companies listed abroad - the option to take shares in
the new vehicle or an equivalent payment in some form,
potentially through a buy back.
"I think if you have a global fund like me you will hold the
Spinco (spun-off company)," Moore said. "If you are a UK-focused
fund you wouldn't want the Spinco. Ideally the arrangement will
incorporate that flexibility."
In its statement to the market, BHP said it expected to
consider a demerger when the board meets next week and would
announce any material decisions immediately.
BHP is scheduled to announce full-year earnings on Aug. 19.
UBS analyst Glyn Lawcock said last month he expected BHP to
go through a three-step process, selling its Nickel West
business, then spinning off its manganese, aluminium and South
African energy coal businesses as a separate company to all
shareholders, before unwinding its dual-listing in London.
Most of the assets that analysts expect it to shed came into
the company through London-listed Billiton when it merged with
BHP in 2001.
At the time, those assets were touted for the diversity they
brought, creating a mining giant with roughly equal earnings
from aluminium, base metals, coal and iron ore.
But they barely contribute to the company's profits now,
overshadowed by a decade of soaring growth in its iron ore,
copper and coal businesses driven by China's rapid economic
At the same time, BHP has expanded in oil and gas through
shale acquisitions in the United States.
"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 said in its statement.
(1 US dollar = 1.0724 Australian dollar)
(Additional reporting by James Regan in Sydney and Nishant
Kumar in London; editing by Tom Pfeiffer and Pravin Char)