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BHP recommends shareholders approve South32 demerger

The BHP Billiton board today recommended shareholders approve the proposed demerger of South32 at the shareholder meeting to be held on 6 May 2015.

The board believes that with a more focused portfolio, BHP Billiton will be better placed to achieve further productivity benefits in its core portfolio, while creating a substantial new company, South32.

BHP Billiton Chairman, Jac Nasser says, “The demerger will simplify BHP Billiton and has the potential to unlock shareholder value, while creating a new global diversified metals and mining company with a significant industry presence in each of its major commodities.

“We believe that South32’s portfolio of high quality assets will benefit from the focus of a dedicated board and management team. South32 will begin with a strong balance sheet, will be able to adopt an independent business strategy and will have the opportunity to pursue growth and investment opportunities that may not otherwise be pursued if its assets remain within BHP Billiton.

“Having assessed a number of alternatives, the BHP Billiton board considers the demerger to be the preferred approach to achieving simplification of our portfolio and maximising shareholder value. The board unanimously recommends that shareholders vote in favour of the demerger.”

A simpler BHP Billiton

Today BHP Billiton has interests in 41 assets across 13 countries and 6 continents. The demerger materially simplifies the portfolio in a single step and is significant progress towards achieving BHP.

Billiton’s identified core portfolio of 19 assets across eight countries and three continents. This portfolio, comprising its exceptionally large long-life petroleum, copper, iron ore, coal and potash assets, collectively generated 96% of the Group’s underlying EBIT in the 2014 financial year.

“The demerger will materially simplify our portfolio in a single step and in the longer term allow us to further focus on delivering gains beyond the US$4 billion per annum by the end of the 2017 financial year already targeted,” says BHP Billiton CEO Andre MacKenzie.

With a simplified portfolio, BHP Billiton intends to streamline its organisational model and expects this to generate functional cost savings of approximately US$100 million (pre-tax) per annum, with 90% of this saving achieved by the end of the 2017 financial year. This saving is in addition to the reduction in costs resulting from the removal of the South32 businesses.

South32 overview

South32 will be a globally diversified metals and mining company with a significant presence in each of its major commodities. The majority of South32’s assets are located in the southern hemisphere with its two regional centres – Australia and South Africa. The company’s name represents this footprint and its regional approach to managing its operations.

South32’s head office will be in Perth, Australia. A regional head office and global shared services centre will be located in Johannesburg, South Africa.

It will be comprised of large assets, the majority of which are competitively positioned in the first or second quartile of their respective industry cost curves. It has meaningful reserve lives to support future production without the immediate need for material incremental capital expenditure.

It has been cash generative over the last three years despite falling commodity prices.

South32’s pro forma balance sheet as at 31 December 2014 includes net debt of US$674 million, including finance leases.

South32 CEO Elect, Graham Kerr says: “We are building a new company from the ground up. We will have competitive assets, significant reserve lives and financial strength. We will benefit from the best of BHP Billiton’s approach to productivity and will create a culture that empowers our people.”

The total one-off costs of implementing the demerger are estimated to be approximately US$738 million. One-off restructuring costs of approximately US$55 million (pre-tax) are expected to be incurred in connection with implementing the organisational changes required to achieve these savings.

South32 will apply for its shares to be admitted to trading on the ASX, LSE and JSE and will have an over-the-counter ADS program in the United States.

South32’s portfolio will comprise:

  •  Worsley Alumina: an 86% interest in an integrated bauxite mining and alumina refining operation located in Western Australia, Australia;
  • South Africa Aluminium: a 100% interest in the Hillside smelter near Richards Bay, South Africa;
  • Mozal Aluminium: a 47.1% interest in the Mozal Aluminium smelter located near Maputo, Mozambique;
  • Brazil Aluminium: a 14.8% interest in the Mineração Rio do Norte open-cut bauxite mine (MRN Mine), as well as a 36% interest in the Alumar alumina refinery and a 40% interest in the Alumar aluminium smelter (together with certain interests in ancillary facilities and    lands);
  • South Africa Energy Coal: a 90% interest in four operating energy coal mines in the Witbank region in the Mpumalanga province of South Africa;
  • Illawarra Metallurgical Coal: a 100% interest in three underground metallurgical coal mines located near Wollongong in New South Wales, Australia;
  • Australia Manganese: a 60% interest in the Groote Eylandt Mining Company (GEMCO) open-cut manganese mine and the Tasmanian Electro Metallurgical Company (TEMCO)
  • manganese alloy plant. GEMCO is located in the Northern Territory, Australia near port facilities at Milner Bay, and TEMCO is located in Tasmania, Australia, near the Bell Bay wharf;
  • South Africa Manganese: a 44.4% effective interest in the Mamatwan open-cut mine and the Wessels underground mine (collectively known as the Hotazel Mines) and a 60% interest in the Samancor Manganese Metalloys alloy plant (Metalloys). The Hotazel Mines are located near the town of Kuruman, South Africa;
  • Cerro Matoso: a 99.94% interest in an open-cut lateritic nickel mine and ferronickel smelter located near Montelibano, in the Córdoba Department in northern Colombia;
  • Cannington: a 100% interest in a silver, lead and zinc underground mine and concentrator operation located in northwest Queensland, Australia, approximately 200km southeast of Mount Isa.

The South32 businesses comprised gross assets of US$26 723 million as at 31 December 2014 and contributed net profit after tax of US$738 million for the 6 months ending 31 December 2014 and US$217 million for the 12 months ending 30 June 2014 based on the historical combined financial information.

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