BHP Billiton Plans Company Split
August 15, 2014
The world's biggest mining group, BHP Billiton, announced on Friday that it will split the company and spin off second-tier assets into a new corporation. The company made the announcement to the Australian Securities Exchange and was quickly rewarded as investors helped lift the company's shares 2.3% to $39.05. Speculation had been brewing for some time as the company struggled to grow.
The company issued a statement in which it said, "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 cash and a superior return on investment".
The new company that will result from the demerger has yet to be named but it is believed it will be headquartered in Perth and will include businesses from South Africa as well as Australian nickel, manganese and aluminum assets. The new company could have assets worth between $14 billion and $20 billion, making it one of Australia's largest mining groups, though still dwarfed by BHP that is currently valued at $202 billion.
For nearly a decade companies like BHP and Rio Tinto had been focused on expansion and takeovers but now the shift is for smaller, simpler operations and more efficiency. Now, cost-cutting is the focus and by demerging its business, BHP Billiton is hoping to streamline its core business operations and increase productivity.