6th May 2015 13:38
LONDON (Alliance News) - BHP Billiton PLC Wednesday said shareholders have backed plans to spin-off the company's non-core assets into a new mining company, South32, in meetings held in London and Perth.
The FTSE 100 multi-commodity company said 98% of votes cast at the meeting were in favour of the spin-off of the South32 business. BHP did not require a shareholder vote to approve the demerger, but decided to voluntarily put it to shareholders to allow them the opportunity to "provide feedback", it said.
The de-merger will see BHP retain its core portfolio of 19 assets over eight countries, focusing on "exceptionally large, upstream, tier one assets diversified by commodity and geography" spread over Australia, Brazil, Colombia, Chile, Peru, the US, Trinidad and Tobago and Canada. Its operations will focus on what it calls its five pillars of iron ore, copper, coal, potash, and oil.
The assets being retained by BHP generated 96% of the company's underlying earnings before interest and tax in 2014.
South32 will take on assets from BHP that are predominantly in the southern hemisphere with some projects in Mozambique and South Africa alongside other assets in Brazil, Colombia and Australia. The portfolio will be diversified with exposure to manganese, silver, nickel, aluminium and coal.
"A strong balance sheet and targeted investment grade credit rating are core to the strategy (of South32)", said BHP in a shareholder presentation on Wednesday. South32 will also pursue its own growth and investment opportunities.
The Nickel West project in Australia remains part of BHP, but is classed as a non-core asset whilst the New Mexico coal project and several smaller petroleum assets are currently under review.
BHP said South32 generated pro-forma revenue of USD8.3 billion and underlying earnings of USD446 million in 2014.
In a shareholder presentation, BHP said it was proceeding with the demerger as part of its long-stated strategy to optimise its portfolio, highlighting that it has made USD6.5 billion of targeted divestments over the last three years.
Current BHP shareholders will retain their holding in the simplified BHP and will continue to receive dividends "with no plans to rebase" whilst eligible shareholders will also receive one South32 share for each BHP share they hold, which will enable them to benefit from any dividends paid by South32.
In March, BHP said South32 intends to distribute a minimum of 40% of underlying earnings as dividends to its shareholders following each six month reporting period, beginning from the period ending December 31, 2015.
South32 shares will trade on exchanges in Australia, South Africa and London and will be headed up by Chairman David Crawford and Chief Executive Graham Kerr.
The total one-off costs of implementing the demerger are estimated to be approximately USD738 million or USD641 million after tax. These comprise stamp duty and cash tax of USD339 million, South32 set up and separation costs of USD254 million and execution costs of USD145 million, including financial advisor costs of USD30 million.
BHP Billiton has previously said it intends to streamline its organisational model and expects this to generate functional cost savings of approximately USD100 million per annum on a pretax basis, with 90% of this saving to be 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. One-off restructuring costs of approximately USD55 million are expected to be incurred in connection with implementing the organisational changes required to achieve these savings.
In the longer term, following the simplification of its portfolio and streamlining of organisational design, BHP Billiton believes it will be able to further focus on improving the performance of its core operations and achieving substantial productivity benefits beyond the USD4 billion a year of productivity-led gains by the end of the 2017 financial year already targeted.
South32 is expected to incur additional costs of approximately USD60 million per annum before tax associated with operating as a stand-alone listed company relative to those incurred operating the South32 businesses as part of the BHP Billiton Group. However, these additional ongoing overhead costs are expected to be outweighed in the near term by the ongoing savings generated by South32's regional model.
BHP shares were up 0.2% to 1,614.00 pence on Wednesday.
By Joshua Warner; [email protected]; @JoshAlliance
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