Shares in BHP Billiton (ASX: BHP, LON: BLT), the world’s largest mining company, advanced in London trading as it hinted it could spin off its non-core aluminium, thermal coal, manganese and nickel assets as part of a plan to simplify its portfolio.
“We believe that a portfolio focused on our major iron ore, copper, coal and petroleum assets would retain the benefits of diversification, generate stronger growth in free cash flow and a superior return on investment,” the company said in response to market speculation.
“By increasing our focus on these four pillars, with potash as a potential fifth, we will be able to more quickly improve the productivity and performance of our largest businesses.”
Aluminium, manganese, nickel and coal (including metallurgical coal) accounted for just over a quarter of BHP’s revenue in the six months to end December, but contributed only about 5% to underlying EBIT.
Speculation said BHP was considering a $20 billion demerger and that a team advised by investment bank Goldman Sachs was examining a number of strategic options for underperforming assets.
Any course of action remains subject to detailed review and an assessment of alternatives, BHP said.
Reports said individual asset sales to trade buyers, or the emerging and well-funded private equity funds, such as the X2 fund headed by former BHP and Xstrata executive Mick Davis, remains the most likely outcome.
Yesterday, X2 announced that it had secured as much as US$3.75bn of equity funding from five investors that will be used to finance the creation of a new mid-tier diversified mining and metals group.
BHP has previously said that the simplification of its portfolio is a priority.
“While today’s announcement is certainly an unusual one, the group is simply reiterating the same strategy that it has highlighted for some years now,” said analysts at Investec Securities.
BHP shares gained over one per cent to close at $37.05.
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