BHP Billiton spin-off in good stead as debt is halved
Commodities group BHP Billiton is set to spin-off its weaker assets with less debt than originally expected through fledgling mining company South32.
South32’s portfolio of mines and refineries has long been overshadowed by BHP’s iron, petroleum and copper businesses.
The smaller business contributed post-tax profits of $738m (£500m) in the last six months of 2014, representing an increase of 50 per cent on analysts’ forecasts for all 2015.
The company also reported revenue of $8.3bn in the year to June 2014, accounting for around 12 per cent of BHP’s total revenues during that period.
The total value of the new company is estimated to be $13bn. However, this could be lower if ongoing weaknesses in the commodities market prove persistent.
The new company is set to reduce costs at its aluminium, manganese and silver projects with the hope of delivering a dividend worth at least 40 per cent of underlying earnings each year.
The total amount of debt the spin-off is expected to start with is $674m, under half of what analysts had expected.
Chief executive-elect Graham Kerr cautioned investors not to expect rapid expansion and acquisitions in the near-term, saying: “We do believe in the concept of crawl, walk and run.”
He added that many opportunities lay ahead, and said the portfolio was strong despite being starved of capital down the years as BHP refocused resources elsewhere.
The unusual name for the new firm is derived from the line of latitude linking its two main centres, Australia and South Africa.
Shareholders are expect to make a final decision at a vote on 6 May, with shares expected to be listed in Sydney, Johannesburg and London on 18 May.