South32 formally launched

BHP Billiton has formally signed off on the demerger of South32 and revealed the new company will have minimal debt and will be committed to shareholder returns.
South32 formally launched South32 formally launched South32 formally launched South32 formally launched South32 formally launched


Kristie Batten

BHP shareholders will receive one South32 share for each share held if approved at shareholder meetings in Perth and London on May 6.

The new company plans to distribute a minimum of 40% of underlying earnings as dividends each half-year.

The new company had gross assets of $US26.7 billion ($A34.9 billion) at December 31, 2014 and contributed net profit after tax of $738 million for the December half-year and $217 million for the 2014 financial year.

South32 will hold Worsley Alumina in Western Australia, aluminium in South Africa, Brazil and Mozambique, coal in New South Wales and South Africa, manganese in South Africa and Australia, the Cerro Matoso nickel mine in Brazil, and the Cannington silver mine in Queensland.

The Perth-based company will have debt of $674 million and closure and rehabilitation provisions of $1.5 billion.

South32 CEO-elect Graham Kerr said the company would target an investment-grade rating and would be well-positioned to pursue value-accretive investment opportunities.

The company will have a $1.5 billion revolving credit facility available.

“This complements a cash-generative asset portfolio,” Kerr said.

Led by Kerr, the board will comprise chairman David Crawford and directors Keith Rumble and Xolani Mkhwanazi, but the company plans to appoint further directors.

“We are building a new company from the ground up,” Kerr said.

“We will have competitive assets, significant reserve lives and financial strength.

“We will benefit from the best of BHP Billiton’s approach to productivity and will create a culture that empowers our people.”

South32 is expected to incur costs of $60 million per year as a standalone entity but expects to offset those by lowering costs.

“We will look to build credibility as a reliable operator,” Kerr said.

The company will apply to list in Australia, South Africa and the UK.

A “simpler” BHP

Independent expert Grant Samuel determined the demerger was in the best interests of BHP shareholders.

BHP expects the demerger to result in one-off costs of $738 million, comprising stamp duty and cash tax, and separation and execution costs.

The company expects to realise cost savings of $100 million per annum, in addition to the savings from removing the South32 assets, but it is likely to record one-off restructuring costs of around $55 million.

BHP currently has 41 assets across 13 countries, but the demerger will result in 19 assets across eight countries focusing on the four pillars of petroleum, copper, iron ore and coal.

BHP CEO Andrew Mackenzie said the creation of a “stunningly simple portfolio” was being achieved without losing scale or diversity.

“This simplification is a major catalyst for change,” he said.

BHP’s board is unanimously recommending shareholder vote in favour of the transaction.