BHP Billiton eyes possible £11bn mining demerger

BHP Billiton has signalled the possible demerger of mining assets worth an estimated £11bn as the company sharpens its focus on its core businesses.

"We continue to actively study the next phase of simplification, including structural options, but will only pursue options that maximise value for BHP Billiton shareholders. Any course of action remains subject to detailed review and an assessment of alternatives," the company said in a statement Tuesday.

"We believe that a portfolio focused on our major iron ore, copper, coal and energy assets would retain the benefits of diversification, generate stronger growth in free cash flow and a superior return on investment. 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."

The remarks followed a report in Australia that said BHP Billiton had consulted with bankers about the potential demerger which would involve spinning off its nickel, manganese and aluminium into a separate business.

Under new chief executive Andrew Mackenzie, the world's largest mining company – with a market value of £106bn – has intensified its efforts to cut costs and sell none-core assets to focus on areas such as iron ore, copper, coal and energy in major production basins.

It is understood that any demerger would not change the company's current listing structure in London and Australia.

In February, the company said first-half net profit soared 83pc to $8.1bn (£4.9bn) on the back of strong production across its iron ore, coal and petroleum businesses.

The result for the six months to December 31 was above expectations, with revenues climbing 5.9pc to $33.95bn. Underlying earnings, which exclude one-off items, rose 31pc to a higher than forecast $7.8bn, with the world's biggest miner declaring an interim dividend of 59 cents a share, up 3.5pc from a year ago.

Mr Mackenzie has pushed through aggressive cost cutting at BHP Billiton since taking over from Marius Kloppers early last year, reducing capital spending at the world's largest mining company from a peak of $22bn.

Management has said that returning more value for shareholders is key as the company targets a 16pc increase in production during the next 18 months. The only stumbling block to the return of cash has been the company’s net debt which stood at $27bn (£16bn) at the end of December.

Fears over a possible credit crunch in China have blown away previous assumptions that 2014 would be a year of steadily rising prices for industrial commodities, which BHP Billiton specialises in producing, as the global economy continued to recover.

Copper prices have fallen 14pc so far this year to about $3 a pound on futures markets. Iron ore tumbled last month to an 18-month low at around $104 per tonne.