BHP to spin off assets as annual net profit soars

Global mining giant BHP Billiton posted a 23.2 percent jump in annual net profit Tuesday and said it would create a new independent company by spinning off non-core assets to cut costs and boost productivity.
The US$13.83 billion result in the year to June 30 -- the first time BHP has posted a year-on-year increase in net profit since 2011 -- came as spending cuts and strong production numbers offset weaker commodity prices.
"With robust volume growth and further productivity gains expected, we remain confident in the outlook for the group," said chief executive Andrew Mackenzie.
BHP had reported a record net profit of US$23.65 billion in 2011.
The world's biggest miner said that to maintain its dominant position it planned to demerge parts of its business to focus exclusively on its core long-life operations -- iron ore, copper, petroleum, coal and potash.
The new entity, to be named NewCo, will include some of its aluminium, coal, manganese, nickel and silver assets, with the demerger expected to be completed in the first half of the 2015 calendar year.
"For over a century, BHP Billiton has progressively reshaped its business to maintain its industry leadership," chairman Jac Nasser said.
"We believe the proposed demerger, if implemented, will accelerate the simplification of the Group's portfolio, provide investors with choice and unlock value in both companies.
"Our shareholders will have the opportunity to vote on this proposal once the necessary approvals are in place."
- Productivity gains -
This year's annual profit was slightly higher than the US$13.6 billion forecast by analysts.
The productivity boost saw underlying profit rise by 10 percent to US$13.4 billion as the miner booked US$2.9 billion in cost savings. BHP's balance sheet strengthened during the period, with net debt falling by US$1.7 billion to US$25.8 billion.
The miner declared a final dividend of US$1.21, a four percent year-on-year increase.
Shares in BHP closed 1.35 percent higher at Aus$39.68 (US$37.06) on the Australian Securities Exchange ahead of the profit announcement, with Mackenzie saying the results showed the company had "delivered on its commitments".
"Our operational performance continued to improve, enabling us to exceed production guidance for a number of our core commodities including iron ore, metallurgical coal and petroleum liquids," he added.
BHP said a balanced global economic outlook would provide support for its commodities, although "with more moderate rates of demand growth".
"In the longer term, wealth creation and urbanisation will remain the primary drivers of commodities demand, although the transition to consumption-led growth in emerging economies should provide particular support for industrial metals, energy and fertilisers."
- Demerger by H1 2015 -
BHP said the new entity, NewCo, would have assets in five countries, with its headquarters in Perth, the capital of Western Australia. It will be listed in Australia, with a secondary listing on the Johannesburg Stock Exchange.
Long-serving David Crawford, a current BHP board member, will be the new chairman with current BHP head of finance Graham Kerr the chief executive.
BHP first signalled in April it may sell some assets but did not say how this would be achieved, with reports at the time saying the new company could be worth about Aus$20 billion (US$18.5 billion).
"The assets that would form the new company are not of the same size as those in our major basins but many are among the largest and highest-quality in their sectors," Mackenzie said.
"We believe they will be more valuable in a purpose-built, independent company than they would be in BHP Billiton."
NewCo will employ about 24,000 staff and contractors. Its operations will include the silver and lead Cannington mine in Australia, and manganese, aluminium and coal mines in Australia and South Africa.
It will also take in the Cerro Matoso nickel mine in Colombia but not Nickel West in Australia, which BHP said it hoped to sell separately.
The spin-off mostly reverses the merger between Australia's BHP and British-based Billiton in 2001.