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Mining & Resources

BHP confirms demerger plans

25 Aug 2014, by Informa Insights

Andrew Mackenzie, Chief Executive, BHP Billiton
Andrew Mackenzie, Chief Executive, BHP Billiton

Andrew Mackenzie, chief executive officer and Jac Nasser, chairman of BHP Billiton have shared their thoughts on why a demerger makes sense for the mining giant.

BHP announced on Tuesday that it plans to launch a new, independent metals and mining company (currently known as ‘NewCo’) which will take ownership of all of BHP’s non-core assets.

The portfolio of the new, $16bn company, which would be listed on the ASX and the Johannesburg Stock Exchange, would include silver, manganese, alumina, bauxite, nickel and metallurgical coal projects in Australia, as well as other similar projects in Africa and South America.

Details of the split are explored by the AJM in a separate story this week.

Chief executive Andrew Mackenzie sought to justify the announcement, which came after a period of rumours and speculation that a split was on the cards.

“We now have two great companies embedded within our portfolio,” Mackenzie said on Tuesday.

“This plan would enable both to achieve their full potential and create new opportunities for our people and communities.”

A demerger, Mackenzie reasoned, would significantly increase BHP Billiton’s focus on the exceptionally large resource basins that underpin its competitive advantage.

“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.

“With a simpler portfolio, we are targeting sustainable, productivity-led gains of at least US$3.5bn per annum by the end of the 2017 financial year.”

NewCo, meanwhile, would benefit from having a board of its own, to lead its own quality asset pool, Mackenzie said.

“The assets that would form the new company are not of the same size as those in our major basins but many are among the largest and highest quality in their sectors,” he said.

“We believe they will be more valuable in a purpose built, independent company than they would be in BHP Billiton.

“With experienced management and a strategy and cost structure tailored to the scale of its businesses, the demerged company would be well placed to create substantial additional value for shareholders and rewarding careers for employees.”

BHP Billiton’s current chief financial officer, Graham Kerr, will become NewCo’s chief executive officer if the split comes to fruition.

David Crawford, set to retire from his current position on the BHP Billiton board in November 2014, would become chairman of the new business.

Jac Nasser, chairman of BHP Billiton, had this to say about Crawford: “David is one of Australia’s most respected company directors and chairmen. He has a deep understanding of the resources industry and nearly 20 years on the board of BHP Billiton. The board believes David’s experience and skills make him the right person to guide the new company through its entry into the global resources sector.

Nasser also sought to justify the demerger plans, saying: “We believe the proposed demerger, if implemented, will accelerate the simplification of the group’s portfolio, provide investors with choice and unlock value in both companies.”

Originally published on The Australian Journal of Mining, 21/08/2014


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