BHP CEO Andrew Mackenzie promised that the new entity would be a “company of global significance”
The company, dubbed NewCo for now, will be based in Perth, listed in Australia and South Africa and led by BHP chief financial officer Graham Kerr.
Kerr has been with BHP since 1994, aside from a brief two-year stint as general manager commercial for Iluka Resources from 2004 to 2006, and has been CFO since 2011.
The assets to go into NewCo comprise the Cannington mine in Queensland, the world’s largest silver producer, the Worsley alumina refinery in Western Australia, the Hillside smelter in South Africa and Mozal smelter in Mozambique, as well as a non-operated asset in Brazil, Illawarra Coal in New South Wales, Energy Coal South Africa, the Cerro Matoso nickel mine in Colombia, and the TEMCO and GEMCO assets in Australia and Hotazel and Metalloys assets in South Africa in manganese.
“Together, all these assets give you a well-diversified global portfolio, which is geared to global growth,” Kerr said on a conference call yesterday.
“In FY14 it had revenue of just under $US10 billion.
“If you look over the last decade, it’s had strong, robust returns through the cycle, it’s had an average EBITDA margin of 34% and that number equates in dollars to about $3.3 billion.”
Mackenzie denied the assets were weak, instead saying that they were too small to fit in BHP’s portfolio.
“Remember, these assets are BHP Billiton assets, built to BHP Billiton standards,” he said.
He said that the assets were leaders in their sectors in the first or second quartile of global costs.
“Over the last decade their markets have evolved differently,” he said.
Kerr said there was the opportunity for the assets in NewCo to improve.
A 5% reduction in cash costs is expected to result in a 20% lift in EBITDA.
“The outlook for NewCo is compelling,” Mackenzie said.
“NewCo will hit the ground running.”
The demerged company will have minimal net debt and will be targeting an investment grade credit rating.
Down the track, NewCo will consider potential expansions of Cannington and/or the South African energy coal assets.
Mackenzie and Kerr were reluctant to give much away yesterday regarding NewCo’s future strategy but said the market would be updated in November.
BHP will seek shareholder approval for the spin-off and hopes to list the new entity in Australia by the middle of next year.
Meanwhile, BHP will hang on to Western Australia Iron Ore, Queensland Coal, New South Wales Energy Coal, Olympic Dam, the Escondida and Pampa Norte copper mines in Chile and the Jansen potash asset in Saskatchewan, as well as its non-operating assets: Antamina copper, Cerrejon energy coal and the Samarco iron ore joint ventures.
Petroleum assets in the United States and Australia which include: operated facilities such as Pyrenees and Macedon in Western Australia, Shenzi in the deep water Gulf of Mexico and Angostura offshore Trinidad, as well as shale resources in the United States, as well as non-operating interests in Atlantis and Mad Dog in the Gulf of Mexico, and Bass Strait and the North West Shelf offshore Australia.
“This largely completes our portfolio simplification in a single step,” Mackenzie said.
In 2005, BHP had 50 assets in 14 countries compared to the current 41 assets in 13 countries.
If all goes to plan with the demerger, by next year it will have 19 operations in eight countries.
Mackenzie said merger and acquisitions were “off the agenda for a considerable period”, claiming that BHP’s internal opportunities were more compelling.
“BHP will remain a strongly internal-focused company,” he said.
