MARKETS SPECTATOR: Adios Pinto

BHP Billiton’s announcement that it will sell the Pinto Valley copper mine looks like just the first of many similar sales.

It may not be the start of a fire sale but those who analyse and invest in BHP Billiton say the $US650 million Pinto Valley copper mine sale may be the tip of many more. In the six months to December 31, 2013, BHP Billiton announced $4.3 billion worth of asset sales. Over the last 12 months it's been $5 billion.

Curiously, investors have not reacted with glee at the Pinto Valley sale. In a market where the S&P/ASX 200 Index gained 0.5 per cent to 5124.2 at 11:14 AECST, BHP Billiton’s stock was down 14 cents, or 0.4 per cent, to $32.44.

Could BHP Billiton have got more for Pinto Valley? In a better copper market it is conceivable. But Pinto Valley production was in decline and needed capital to continue to be productive. That kind of investment is an anathema to BHP under the leadership of soon to be chief executive Andrew Mackenzie.

Mackenzie and his newly announced executive team, in the words of Perpetual analyst Andrew Corbett, is about to sell ‘stacks’ of BHP Billiton assets to try and slash costs, lift the stock’s yield yet show investors the company can produce earnings growth.

Fund managers holding BHP Billiton shares have been pressing the world’s largest mining company to sell assets it does not have to own: power stations, housing units, ports and railroads. In short almost everything the analysts see as not ‘core’ to BHP Billiton’s operations. Why should Andrew ‘Twiggy’ Forrest’s Fortescue be the only Australian miner with an asset sale program? Asks Corbett and his peers.

BHP Billiton is in the process of focusing its business on onshore oil production, iron ore mining, copper extraction as well as turning around its Queensland coal mines in the Bowen Basin. Everything else may have ‘for sale’ signs.