BHP spin-off worth $US14bn, says Deutsche

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% 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% 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.