19th Aug 2014 08:28
LONDON (Alliance News) - BHP Billiton PLC Tuesday confirmed that it will demerge its aluminium, coal, manganese, nickel and silver assets into a new company, pledging to cut costs and improve the productivity of its remaining businesses in an attempt to boost shareholder returns.
The move, which the mining giant had said it was considering last week, will leave it focused on iron ore, copper, coal, petroleum and potash.
The new company will be listed in Australia and South Africa and will be wholly owned by BHP Billiton's existing shareholders initially. BHP Billiton Chief Financial Officer Graham Kerr will become chief executive while Head of Investor Relations Brendan Harris will become chief financial officer. Both will be based in Perth, Australia. David Crawford will be its chairman, stepping down from the board of BHP Billiton.
The assets selected for the new company include BHP Billiton's aluminium and manganese businesses and the Cerro Matoso Nickel, Energy Coal South Africa, Illawarra Metallurgical Coal and Cannington Silver-Lead-Zinc mines.
The mining giant has been working to simplify its portfolio of assets for more than a decade. Recently, it had been looking at options in its most recent portfolio review including an asset sale, but said last week that it had decided a demerger was its best option.
"For over a century, BHP Billiton has progressively reshaped its business to maintain its industry leadership. We believe the proposed demerger, if implemented, will accelerate the simplification of the Group's portfolio, provide investors with choice and unlock value in both companies. Our shareholders will have the opportunity to vote on this proposal once the necessary approvals are in place," BHP Billiton Chairman Jac Nasser said in a statement.
"In a single step, we will significantly increase BHP Billiton's focus on the exceptionally large resource basins that underpin its competitive advantage. As we move towards a simpler portfolio, comprised of our pillars of Iron Ore, Copper, Coal, Petroleum and potentially Potash, we will become a higher-margin, higher-return business," Chief Executive Andrew Mackenzie added.
The mining giant said its pretax profit rose to USD22.24 billion in the 12 months to June 30, from USD21.00 billion in the previous year, as revenue rose to USD67.21 billion, from USD65.95 billion and it cut costs. Its net profit rose to USD13.8 billion, from USD11.2 billion.
It said cost efficiencies and productivity-led volume gains were USD2.9 billion in the year, USD1.1 billion more than it had targeted.
"This means we have now delivered more than USD6.6 billion of sustainable productivity-led gains over the last two years."
It also cut capital and exploration spending by 32% to USD15.2 billion, helping it deliver a USD8.1 billion rise in free cash flow despite the fall in commodity prices during the year.
It said the lower average prices for the commodities it mines reduced its underlying earnings before interest and tax by USD3.4 billion. However, the improvement in productivity led to a 9% increase in production during the year.
Its Western Australia iron ore and Queensland coal production exceeded guidance, both rising by more than 20%. It said it had delivered more tonnes from existing infrastructure and growth projects ahead of schedule.
BHP Billiton increased its full-year dividend to 121.0 cents a share, from 116.0 cents last year.
"We will seek to steadily increase or at least maintain the dividend per share in US dollar terms at each half-yearly payment following the demerger, implying a higher payout ratio," it said.
Looking ahead, the company expects that capital and exploration expenditure will fall to approximately USD14.8 billion in the current financial year, and come in no higher than USD14 billion should the proposed demerger be implemented.
BHP Billiton shares were 4.1% lower at 1,983.00 pence Tuesday morning, the biggest faller in the FTSE 100.
By Alice Attwood; [email protected]; @AliceAtAlliance
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