Spin-off views

UNION officials are yet to express any significant opinions on BHP Billiton’s “NewCo” spin-off plans, while a veteran mining analyst warns they may create some share price weakness for the mining company.

Blair Price

Its plans include keeping the Queensland metallurgical coal assets and operations under the BHP portfolio while putting the less profitable Illawarra Coal division into the proposed spin-off vehicle.

While Construction, Forestry, Mining and Energy Union coal-related campaigns against BHP have previously criticised the vast profits the mining giant has made, the union seems to be taking a wait-and-see approach on the demerger front.

“We haven’t come out with a view,” a CFMEU official told International Coal News.

“A letter has been written to BHP by [Australian Council of Trade Unions secretary] Dave Oliver on behalf of the ACTU for all unions involved in BHP mining operations.

“We obviously want to ensure our members and workers are not disadvantaged in any way, shape or form by this.”

Meanwhile, qualified mining engineer and Morgans mining analyst Tom Sartor last week pondered possible outcomes of the spin-off plans.

“If BHP drops 5% to where it started at the beginning of August ($A38), then it will offer a 12-month total shareholder return of almost 22%, comprising 17% of capital upside and 4.6% gross yield,” he said in a report.

“It is also trading at well below mid-cycle commodity pricing and, with value to be unlocked and coming shareholders' way via the NewCo spin-off, BHP is still easily our default resources exposure.

“Unfortunately for the yield seekers, better guidance on capital management may take another 9-12 months to realise when the spin-off is finalised.

“Call us purists but we maintain that the core reason to invest in resources companies is for growth leverage (in production and commodity price) rather than yield.

“But we are conscious that at the moment the market wants the opposite and that BHP may be weaker in the interim.”