The alacrity with which BHP Billiton responded to a media report that it was considering spinning-off its non-core assets into a separately listed vehicle would suggest that there is some fire where that smoke was billowing.
That doesn’t, however, mean that a demerger of those assets – aluminium, alumina, nickel, bauxite, manganese, zinc and, perhaps energy coal – will occur.
Given Andrew Mackenzie’s commitment to a ‘’four pillars’’ strategy, with potash as a potential ‘’fifth pillar,’’ BHP would, of course, look at all its options for divesting itself of the non-core elements of its portfolio. A spin-off would be measured against the potential and potential returns of the alternatives, most obviously a series of asset sales.
In response to the report, BHP issued a statement saying that simplification of its portfolio is a priority that it had been pursuing for several years and which already included divestments of petroleum, copper, coal, mineral sands, uranium and diamond assets.
‘’We continue to actively study the next phase of simplification, including structural options, but will only pursue options that maximise value for BHP Billiton shareholders. Any course of action remains subject to detailed review and an assessment of alternatives,’’ the company said.
As noted earlier today (X2 jostles to be the next Xstrata) those alternatives are starting to open up.
Where there has been a dearth of buyers of resource assets with real financial capacity and the resources expertise to exploit it in recent years, Glencore Xstrata and the new vehicle for former Xstrata chief executive, Mick Davis, X2 Resources, have serious financial capacity and expertise and are now signalling their willingness to begin deploying them.
There’s a lot in the non-core BHP portfolio that Davis, in particular, would know well from his days as a key Billiton executive (and his brief stint as BHP Billiton chief financial officer) while Glasenberg has made no secret of his interest in BHP’s Nickel West business.
BHP could, analysts have suggested, spin off $20 billion-plus of assets to its shareholders if it wanted to package those that are non-core into a new vehicle.
BHP has said that it would consider capital management initiatives once it gets its net debt down to $US25 billion, a level it is expected to achieve sometime this year.
A demerger would be a rather spectacular form of capital management but is inevitably going to be assessed against the value of the key assets to strategic buyers, as opposed to the sharemarket.