Diversified mining giants becoming less so – by Lawrence Williams (Mineweb.com – August 19, 2014)

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Confirmation that BHP Billiton is planning to demerge what it considers its non-core assets into a new company continues the trend for the world’s biggest miners to simplify their structures.

LONDON (MINEWEB) – The big post 2008 fallout in the global mining sector has been a major influence on corporate policy since. It has already seen the culling of the chief executives who had the misfortune to be in place as metal prices slumped and profits collapsed. They had previously been exhorted by their institutional shareholders to go for growth almost at any cost.

But once it became apparent that some of the huge capital programmes involved were actually having a negative impact on the bottom line, helped by the fact that the concentration on growth had led to management’s eyes being taken off controlling costs at existing operations, then institutional pressures changed and heads started to roll. CEOs became an endangered species

Now it looks as though there is something of a different tack coming into play. For the single commodity players – e.g. those in the precious metals sector there has also been a move to demerge, or just sell what are considered to be non-core assets – those that had appeared to be taking up too much management time and effort, but without complementary returns. A typical example of this has been Barrick Gold’s floating off of African Barrick which now at least seems to be turning itself around, but still probably falls short of its parent’s return requirements. Others have been divesting of so-called non-core projects piecemeal.

But while the gold miners were relatively quick to act – the big diversified miners perhaps took a little more time over their moves to do likewise. True some individual projects were being divested but now, with the announcement of a big demerger within the biggest miner of all, BHP Billiton, it looks like the big boys could be getting into this process in a major way.

BHP has now set a course to concentrate on it big bulk mining potential metals and minerals – iron ore, coal and potentially potash, along with oil and gas and copper – the latter being the hugely dominant base metal in terms of production. Rather than sell off its non-core assets piecemeal though, it has decided to lump them together to form a new less diversified offshoot concentrating on its aluminium, coal, manganese, nickel and silver assets.

This new offshoot will have to make its own way but without the support of the big bulk mined materials where BHP’s true profits have come from over the past few years. It will also rid the core BHP business of the South African assets (mostly aluminium and coal) which BHP took on with the merger with Billiton in 2001. South Africa is not proving an easy country to work in for miners with labour unrest, calls for mine nationalisation and an economy which appears to be wavering.

Commenting on the proposals, BHP CEO, Andrew Mackenzie said: “As a result of the extensive investment we have made in recent years, and the transformational growth of our major businesses, we now have two great companies embedded within our portfolio. This plan would enable both to achieve their full potential and create new opportunities for our people and communities.

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