(Adds link to Breakingviews video)
* Spin-off includes some nickel, coal
* Analyst sees 'better asset mix than we thought'
* Company to hold minimal net debt
* BHP Billiton half-year profit up 8 pct
* London-listed shares drop 4 pct
By Sonali Paul
MELBOURNE, Aug 19 The world's biggest mining
company, BHP Billiton , announced plans to spin
off businesses worth an estimated $16 billion, most of them
acquired in its 2001 merger with Billiton, to focus on its most
But it held off on a share buyback, disappointing investors
who had hoped to receive around $5 billion. BHP's London-listed
shares fell 4 percent.
Chief Executive Andrew Mackenzie, in the top job for just
over a year, said the widely expected move to simplify BHP
around the "four pillars" of iron ore, copper, coal and
petroleum would spur cashflow growth and boost returns.
"By concentrating on what we do best, the development and
operation of major basins, we can improve our productivity
further, faster and with greater certainty," Mackenzie said in a
The spin-off company, dubbed NewCo for now, will bundle
BHP's aluminium, manganese, Cerro Matoso nickel in Colombia,
South African energy coal and some Australian metallurgical coal
assets and the Cannington silver, lead and zinc mine.
"It's probably a better asset mix than we thought it would
be beforehand. BHP has added Cerro Matoso, which is a better
nickel asset than its Nickel West division, and Illawara Coal,"
said David Radclyffe, an analyst with CLSA in Sydney.
BHP confirmed the spin-off as it reported an 8 percent rise in
second-half underlying attributable profit to $5.69 billion,
just below a consensus analyst forecast of $5.94 billion,
according to Thomson Reuters Starmine's SmartEstimate.
Analysts and investors said the fall in BHP shares on
Tuesday was an over-reaction.
"Some people may be disappointed because nothing was
announced on a special dividend or buyback," said Albert
Minassian, an analyst with Investec in London.
"But if you already have big news about a spin-off there is
no point announcing the two together. You keep something for the
next time. The money is still there," he said.
BHP had been targeting net debt of around $25 billion before
it would consider returning capital to shareholders. But on
reaching that goal, it said it would only go ahead when it could
return capital in a predictable and sustainable way.
"We are planning ahead prudently, but we will not be
excessively conservative. We will continue to look at ways of
shifting excess cash in a timely way to our shareholders,"
Mackenzie told reporters.
BHP said it had cuts costs in the 2014 financial year by
$2.9 billion and flagged that it expected to achieve a further
$3.5 billion in cost savings over the next three years.
The new company will be headquartered in Perth and listed in
Australia, with a secondary listing in South Africa.
Shareholders in BHP Billiton Ltd and BHP Billiton Plc would
receive shares in the new company on a pro-rata basis.
BHP did not state the value of the new company, but three
analysts estimated it could be worth between $15 billion and $17
BHP said only that NewCo's businesses had achieved a profit
margin of 21 percent in the 2014 financial year and would carry
"minimal debt", targeting an investment grade credit rating.
"It looks like quite an interesting company, and given the
size and diversification it'll be pretty well received," said
Brenton Saunders, a Sydney-based portfolio manager at BT
Investment Management, which owns shares in BHP.
The company would be headed by BHP Billiton Chief Financial
Officer Graham Kerr, while Brendan Harris, BHP Billiton's head
of investor relations, would be chief financial officer.
BHP's Australian Nickel West operations were not included in
the new company, and a separate sale process was continuing,
Mackenzie said. The company was in talks with several potential
(Additional reporting by Silvia Antonioli; editing by Richard
Pullin and Tom Pfeiffer)