BHP Billiton has formalised the 10 key assets that will make up its spin-off business South32, but the bulk of the company’s rail-relevant assets will stay within BHP.
BHP chief executive Andrew Mackenzie addressed shareholders yesterday, saying the spin-off – which was announced late last year – was aimed at simplifying the portfolio of the greater BHP business, while also creating a promising new company.
The spin-off of 10 key assets into the new company, South32, will leave the ASX-listed giant with its four key ‘pillars’ to work on: coal, iron ore, oil & gas, and copper/gold.
Coal and iron ore are of course the two most relevant aspects of BHP when it comes to the rail industry in Australia.
Illawarra Coal will be moved to South32, but the majority of BHP’s other Australian coal and iron ore ventures will stay with the larger business.
“With a simplified portfolio we intend to streamline our organisational model, further standardise our common systems and better leverage our technical expertise across our operations,” Mackenzie said.
“Having achieved significant productivity gains to date, future gains will be harder won … The demerger will materially simplify our portfolio in a single step and in the longer term allow us to further focus on delivering gains…”
South32 will include assets within a few key product groups:
Bauxite, alumina and aluminium
- Worsley Alumina: an 86% interest in an integrated bauxite mining and alumina refining operation located in WA.
- 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, as well as a 36% in the Alumar alumina refinery, and a 40% interest in the Alumar aluminium smelter, along with interests in certain ancillary facilities, all in Brazil.
Coal
- South Africa Energy Coal: a 90% interest in four operating energy coal mines in the Witbank region in the Mpumalanga province, South Africa.
- Illawarra Metallurgical Coal: a 100% interest in three underground metallurgical coal mines near Wollongong, NSW.
Manganese
- 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 on Groote Eylandt, an island off the Northern Territory’s eastern coastline. TEMCO is near Bell Bay, in Tasmania.
- South Africa Manganese: a 44.4% effective interest in the Mamatwan open-cut mine and the Wessels underground mine, and a 60% interest in the Samancor Manganese Metalloys alloy plant, in South Africa.
Other base metals
- Cerro Matoso: a 99.94% interest in an open-cut lateritic nickel mine and ferronickel smelter located near Montelibano, in the Córdoba Department, northern Columbia.
- Cannington: a 100% interest in a silver, lead and zinc underground mine and concentrator operation located roughly 200km southeast of Mount Isa, Queensland.
Together, the South32 businesses comprise gross assets of US$26.723bn as at December 2014, according to BHP’s figures.
The assets contributed net profit after tax of US$738m in the first half of the 2014/15 financial year.
Graham Kerr, elected as the inaugural chief executive of South32, said while the new company is comprised of existing assets, he intends to run the business as a new player in the global market.
“We are building a new company from the ground up,” Kerr said. “We will have competitive assets significant reserve lives and financial strength.”
BHP formally recommended the demerger to shareholders yesterday. It will be voted upon on May 6, in what is likely a formality process.
The South32 assets as at December 31, 2014, included net debt of US$674m, which should please major BHP shareholders, who have expressed a desire to have South32’s net debt below US$1.5bn.