BHP spin-off worth $US14bn, says Deutsche

BHP’s plans to spin off non-core assets is logical and may help its shares, say analysts at Deutsche Bank.

Deutsche Bank analysts say BHP Billiton’s aluminium, manganese, nickel, South African coal assets and the Cannington mine are worth about $US14 billion if the world’s biggest mining company puts them into a new company.

In a research note, Deutsche Bank says BHP’s plan to sell these non-core assets is logical and may cause a “modest re-rating of BHP as a result”.

“We think an in-specie distribution to Australian and South African shareholders of 100 per cent of NewCo is a logical divestment path, with a potential cash or scrip top-up to UK holders,” says the note.

Still, the analysts say a spin-off of BHP assets into a new company requires multiple approvals and may take 12 months to complete.

“We believe NewCo could stand on its own two feet if the Cannington lead/silver mine is included,” says the Deutsche Bank research note. “We see free cash flow increasing to $US600m as nickel, alumina and aluminium prices improve. We believe NewCo may trade at around 0.7x NPV and can only handle gearing of 10-20 per cent due to the likely BBB credit rating.”

The analysts added that BHP Billiton's second-tier portfolio spin-off would better fit the Johannesburg Stock Exchange than markets in Australia or London.

(Reporting by Brett.Cole@businessspectator.com.au

Editing by Victoria.Thieberger@businessspectator.com.au )