Melbourne - BHP Billiton declared its preference for a demerger of its unwanted aluminium, manganese and nickel assets on Friday, setting the stage for the formation of a separate company that one report said could be worth $14 billion (R148 billion).
BHP said its board was considering a spin-off at meetings ahead of its annual results announcement next week.
One report 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.
The company has long flagged that it wanted to sell or spin off its manganese, aluminium and nickel assets, which contribute very little to its earnings, and it said on Friday simplifying the company would “generate stronger growth in cash flow and a superior return on investment”.
BHP is relying on iron ore for the lion's share of fiscal 2014 earnings, after beating its own guidance for full-year iron ore output, mining a record 225 million tonnes.
“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.
Boyd-Clark declined to put a value on the spin-off ahead of an announcement on what would be included in the new company.
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.
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 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.
In its statement to the market, it said it expected to consider a demerger when the board meets next week and would announce any material decisions immediately.
It is scheduled to announce full-year earnings on August 19.
FOUR PILLARS
UBS analyst Glyn Lawcock predicted last month that BHP would 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 the company 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 those former Billiton assets barely contribute to earnings now, as chief executive Andrew Mackenzie has championed the group's four key commodity “pillars” - iron ore, petroleum, copper and coal.
“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 on Friday. - Reuters