The world’s biggest miner BHP Billiton Thursday defended its plan to split the company by spinning off non-core assets, saying it would generate stronger growth, with a vote on the demerger set for May.
BHP announced in August a proposal to create a new independent company by demerging some assets, including aluminium, manganese, silver and selected coal and nickel operations.
Under the plan, the new entity — provisionally named NewCo — will be dual-listed in Sydney and London, with an additional listing in Johannesburg.
BHP chairman Jac Nasser said key customer China and other emerging economies would continue to underpin demand for BHP’s resources, with the demerger the best way to cut costs and boost productivity in a more challenging future.
“Over the past decade, demand for commodities grew significantly,” he told shareholders at the company’s annual general meeting in Adelaide.
“Our strategy was to direct capital to projects in businesses that delivered the highest returns. This strategy has served our shareholders well.”
But over time the group has evolved into what it said were two distinct companies — one comprising its largest businesses such as iron ore and copper, and another with more downstream exposure, and it is these it wants to spin off.
“We see benefits for both companies and for all shareholders. For BHP Billiton, we can reduce costs and improve the productivity of our largest businesses more quickly,” said Nasser.
“This means we should generate stronger growth in free cash flow and a superior return on investment.
“The new company will benefit from its own strategy and systems that will be tailored for a business of its scale. This, along with a dedicated focus on the new company, should see its assets perform even more strongly.”
The company said it was jumping over the necessary regulatory hurdles and planned an extraordinary general meeting in May next year to vote on the demerger.
BHP posted a 23.2 percent jump in annual net profit to US$13.83 billion in the year to June 30, driven by strong iron ore production, and Nasser said the company’s strategy would not change.
He called iron ore, coal, copper, petroleum, and possibly potash the building blocks of BHP’s future.
Despite the challenges of sliding commodity prices and a slowing Chinese economy, chief executive Andrew Mackenzie was upbeat and said the primary focus was boosting capital returns for shareholders.
“Everything we are doing, including productivity accelerated by the demerger, is aimed at increasing cash returns to you, our shareholders,” he told the AGM.