By revealing plans for the creation of a new business containing all of its dud assets - including aluminium, nickel and manganese - BHP Billiton has clearly told Davis, the former Xstrata boss who says he has $US3.75 billion to spend on mining assets, that it’s time to put up, or shut up.
It’s not quite as coarse as that. The chaps running big companies tend not to say things such as “put up, or shut up”, but to outsiders that’s precisely what’s happened in what will, one day, be seen as the equivalent of a seismic event that shifted the entire mining world.
Before getting to the really good news in the BHP Billiton plan to create BHP2, or Son of BHP, made up of discarded assets, it’s worth looking at the sales process launched last week, which is the culmination of a year-long attempt to dispose of surplus assets.
Unfortunately for BHP Billiton, its attempts to orchestrate a quiet sale with minimum disruption attracted “tyre kickers” such as the X2 fund run by Davis, which looked but did not lodge firm bids, or bids that were high enough.
Time’s up, is the clear message from BHP Billiton, and while that may seem to be something that only applies to Davis, and other potential bidders, it is actually the clearest (and loudest) signal yet that the recent “down” cycle in mining is over and recovery really is underway.
If in doubt, and you are concerned that tough times will linger longer, check these points and you will arrive at the same conclusion as Dryblower:
The world’s biggest mining company is clearly saying that it wants to reorganise its affairs, which is precisely what everyone does when they change jobs, move between cities, or swap wives.
Just as big personal changes see the dumping of surplus junk in favour of the good bits you would prefer to keep, so too is BHP Billiton.
Economic recovery is in the air, just perhaps not in China, where a mighty clean-up is underway. In Europe and the US, which are bigger than China, there is a definite upward trend.
BHP Billiton is reading the economic signals and reckons there are willing buyers of its surplus keen to get into the resources business, or expand what they already have.
Supply shocks in some commodities, including nickel, are a reminder that most metal markets are not suffering from chronic over-supply and that it will not take too much of an increase in demand to tip them into deficit.
The assets to be sold or floated off by BHP Billiton are not bad assets, they are mines, refineries and smelters that need fresh capital and fresh management to survive and grow.
Investors are dusting off their files on mining stocks and pouncing quickly on speculative situations such as Cassini Resources after it acquired BHP Billiton’s West Musgraves nickel and copper prospect, and
- The boom in technology and biotech stocks has started to implode, which means money diverted to the tech sector is starting to rotate back to resource stocks.
A rosier outlook, which can be seen in the US unemployment numbers, record vehicle sales, and Spanish 10-year bonds yielding less than US 10-year bonds, is what encouraged BHP Billiton to press the go button on its proposed de-merger into two separate entities.
Potential private buyers of BHP Billiton’s surplus assets now know that the clock has started ticking on their plans to buy what they hoped would be bargain basement prices, but which now look to have gone up in price.
It’s the time factor, and an appreciation that there really hasn’t been a crash of the sort seen in previous downturns, that will force Davis and his X2 partners to either move soon, or consider returning the funds raised.
For the rest of the mining industry, the next few months will be fascinating because either there will be the launch of a new business which has the aim of reviving BHP Billiton’s surplus assets, or the private equity funds will be forced to act, and then try to do what BHP2 is being programmed to do.
Either way, mining assets currently regarded as either surplus or under-performers are about to be kicked back into life by a new owner after years of being starved of the capital needed to sustain and grow.