BHP says case for $15bn demerger is compelling

The group’s chief executive Andrew Mackenzie told a mining conference in Miami overnight that the case for more portfolio simplification was “compelling’’.

He said more simplification — BHP has already disposed of $US6.5bn in non-core assets in the last two years — was a priority.

Early last month BHP responded to market speculation that it was considering a demerger of its non-core assets into a new company by saying that “structural’’ options were being considered as part of its desire for more simplification as it increasingly focuses on its four “pillars” of iron ore, petroleum, copper and coal.

That the case for more simplification has become “compelling’’ since the April statement will fuel speculation that BHP is close to moving on either a string of asset sales, or the demerger plan.

But Mr Mackenzie told the conference that no decisions had been made.

“We continue to study the next phase of simplification, including structural options, but no decisions have been made.”

“We will only pursue options that maximise value for BHP Billiton shareholders,” Mr Mackenzie said.

Private equity groups angling to buy some of the assets BHP is looking to discard have expressed frustration at BHP’s lack of engagement with them on the subject, prompting suggestions that a demerger of the assets is now a clear favourite.

Assets earmarked for sale or demerger includes BHP’s aluminium, nickel and manganese assets, and possibly some overseas thermal coal interests.

Meanwhile, Mr Mackenzie highlighted the productivity gains BHP is achieving as an offset to weaker commodity prices.

“Today you’ll hear me repeat a number of things I’ve said before because maintaining your confidence is about being predictable and consistently delivering on our commitments,” he said. “We have embedded $US4.9bn of sustainable productivity gains which will increase to $US5.5 billion by the end of this financial year.

“In the first half of the 2014 financial year, average truck utilisation, compared with last year, improved by 8 per cent. The average utilisation of our diggers increased by 10 per cent, and we have reset the performance benchmark higher so a clear opportunity remains across the group.

“By doing what we said we would do in the first half of the year, we increased free cash flow by $US7.8 billion and underlying return on capital to 22 per cent,” Mr Mackenzie said.