BHP Billiton Splits into Core and Non-Core Operations

Breaking up is hard to do, unless it’s a profitable one.

Australia-based mining company BHP Billiton (NYSE: BHP) (ASX: BHP) is going back to its roots by announcing a split between core and non-core operations, transferring aluminum, manganese and nickel assets into a new company.

According to a new report authored by Sonali Paul, the demerger of assets into a separate business could be worth at least $12 billion.  Simplifying the company would “generate stronger growth in cash flow and a superior return on investment, ” a spokesperson for BHP said on Friday.

The split will allow the company to focus on its four pillars, “with potash as a potential fifth,” allowing BHP to “quickly improve the productivity and performance of our largest businesses,” the company said.

For some of BHP’s largest shareholders the announcement has been music to their ears, as financial analysts believe that the move could make shareholders richer.

"It’s good to see BHP taking the lead in the sector on this,” said Christopher Moore, portfolio manager of Fidelity Global’s Industrials Fund. “It reassures you as a shareholder. It makes me more willing to have it as a significant bet within my fund."

BHP Billiton is likely to offload roughly $1.0 - $2.7 billion of its debt to the new company.

"Spin-offs have the potential to crystallize value that the market may not have been able to see," said Neil Boyd-Clark, a portfolio manager at Arnhem Investment Management, which owns shares in BHP.

The demerger could prompt other large mining companies—including Rio Tinto and Anglo American—to follow BHP’s lead.

BHP Billiton is expected to announce additional changes at the start of the week, including a simplified stock exchange listing between Australia and London exchanges.