BHP Billiton Ltd. (BHP), the world’s biggest mining company, is studying simplifying its operations to focus on iron ore, copper, coal and petroleum, after a two-year campaign of selling assets around the world.
The company is considering options including spinning off aluminum, nickel and bauxite assets in a A$20 billion ($19 billion) transaction, the Australian Financial Review reported today. The simplification of its portfolio is a priority, the Melbourne-based company said today in a statement.
BHP and Rio Tinto Group have been leading a global push for asset disposals as mining companies focus on their most profitable operations after a decade-long boom in metal prices waned. BHP confirmed in March last year that it was planning to sell about 10 assets as $48 billion of mines and businesses hit the global market with for-sale signs.
“It probably tells you that a trade sale of some of those assets is proving more difficult than BHP would like,” said Tim Schroeders, a Melbourne-based money manager who helps oversee about A$1.1 billion in equities at Pengana Capital Ltd., including BHP shares. “Going to the markets would allow BHP to rule a line under some of these businesses and might be a nice neat fit.”
BHP rose 1.6 percent to A$37.05 in Sydney. The stock has dropped 2.5 percent this year.
BHP has booked impairment charges on the Nickel West assets of almost $1.6 billion in the past two fiscal years after prices for the metal fell. The operations produced 103,300 metric tons in fiscal 2013. The assets include the Mount Keith open-cut mine and concentrator, two underground mines and smelting plants at Kalgoorlie and Kwinana.
“We continue to actively study the next phase of simplification, including structural options, but will only pursue options that maximize value for BHP Billiton shareholders,” BHP said.
A team advised by Goldman Sachs (GS) Group Inc. is working on a number of options, including a demerger and individual asset sales, according to the Financial Review report.
Sydney-based Goldman Sachs spokeswoman Hayley Morris declined to comment.
Run for Cash
BHP Chief Executive Officer Andrew Mackenzie flagged in an interview in August that the company would further trim its portfolio. He told an earnings call later in the month that the nickel and aluminum businesses were run for cash and received no major capital investment.
He said in February they were performing well.
Some assets have been sold. The Pinto Valley copper mine in the U.S. was sold by BHP last year for $650 million to Canada’s Capstone Mining Corp. That followed sales of a Canadian diamond mine, an Australian uranium project and a stake in a gas field in the Browse basin.
BHP’s aluminum, manganese and nickel assets are worth about $15 billion, according to a 2014 estimate by Royal Bank of Canada Capital Markets in a Dec. 5 note to clients.
With major producers seeking to divest some parts of their businesses there may be fewer buyers for BHP’s non-core assets, according to Pengana’s Schroeders. Glencore Xstrata Plc, the global commodity trader and metals producer run by billionaire Ivan Glasenberg, said last month it was studying a bid for BHP’s Australian nickel assets.