In its half year results, ended December 31, 2014 released on Tuesday, mining major BHP Billiton announced that it expects to release all shareholder documentation with full details of the South32 spin-off in mid-March, with a shareholder vote taking place in early May.
In December last year, BHP Billiton announced that the new company it intends to create through its proposed demerger will be called South32 – to reflect where the majority of South32’s selected assets are located – in the southern hemispheric countries of Australia and South Africa.
Considering the declining commodity markets, South32, the independently-listed global metals and mining company, would be used as a means for BHP to shed its smaller aluminium, coal, manganese, nickel and silver assets so it can focus on its four core commodities, namely its exceptionally large, long-life iron ore, copper, coal, petroleum and potash developments.
This will enable BHP to retain full exposure to the early, middle and late stages of the economic development cycle.
BHP Billiton CEO Andrew Mackenzie says the proposed demerger is part of the company’s push for productivity, which he believes must continue as it is “a catalyst for further progress”.
BHP says that a final board decision on the proposed demerger will be made once all necessary third party approvals are secured on satisfactory terms.
If completed, the proposed demerger has the potential to unlock shareholder value by significantly simplifying the group and dividing it into two distinct portfolios, each reflecting the common characteristics of their assets.
Meanwhile, South32 will benefit from a dedicated management team who can tailor their strategy to suit their own distinct portfolio to enable higher levels of performance than possible if managed together.
With fewer assets and a greater upstream focus, Mackenzie further comments that the simplification will ensure that BHP Billiton’s organisation, systems and processes are dedicated to its core assets, allowing it to further reduce costs and improve the productivity of its largest businesses. As a result, BHP Billiton is expected to generate stronger growth in free cash flow and a superior return on its investment.
Mackenzie concludes: “We remain confident about the outlook for our company. We have the best quality assets and operating capability, a deep understanding of global markets, a portfolio of very high-return growth projects, a strong balance sheet and offer outstanding cash returns to shareholders. The demerger will allow us to continue the process of building an organisation that is truly unique in our sector, and one that is well positioned for success in the face of ever-increasing volatility.”