NewCo, BHP's $15 Billion Spin-Off, to Become Global Metals Competitor

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Researched by Industrial Info Resources Australia (Perth, Australia)--BHP Billiton (NYSE:BHP) (Melbourne) recently confirmed that it will spin off its non-core aluminum, coal, manganese, nickel and silver assets into a new company, NewCo, which is set to be headquartered in the Western Australian capital of Perth. BHP will use the the $15 billion spin-off to free up cash flow and allow it to continue to expand its four large, long-life key commodities: iron ore, petroleum, copper and coal. Potash is a potential fifth.

External sources suggest that the newly formed company will be a diversified company, not unlike BHP, and will have exposure to manganese, precious metals, base metals, metallurgical coal and energy coal. According to the BHP announcement, many of the assets selected for NewCo are among the most competitive in their industries.

For example, NewCo's strongest and most profitable performer will be the Cannington Mine in Queensland, which has at times been the world's biggest producer of silver, while also churning out zinc and lead. Combined with the Underground Olympic Dam Mine, NewCo will be able to process almost 5 million tonnes of ore for silver production after the active Cannington Mine expansion project is completed.

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The industries assigned to NewCo will include BHP's entire aluminium and manganese businesses in Australia, which includes the Groote Eylandt Manganese Mine in Northern Territory and the Boddington Marradong Bauxite Mine in Western Australia. The mines produce 4.8 million tonnes of unprocessed manganese ore and 5 million tonnes of unprocessed bauxite, respectively. These Australian assets, combined with those in South Africa, would make NewCo the the world's largest producer of manganese ore, with growth options that include the utilization of the Groote Eylandt port facilities for expansion.

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BHP Billiton also is expected to place strongly performing coal assets in NewCo's portfolio, which would include the entire Illawarra metallurgical coal range. This acquisition would provide NewCo with more than 15 million tonnes of exporting capacity for its coal business, at a low production cost. These assets will include the Appin/West Cliff underground coal mine and processing plant, as well as the Wollongong Dendrobium underground coal mine and nearby processing plant.

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The BHP spin-off looks set to acquire much higher-quality assets in Australia than was previously assumed. It would appear that the mines will provide some of the largest production capacities in their industries, at some of the lowest costs to maintain and operate. Although BHP's Nickel West business in Western Australia will be excluded from NewCo's assets--considered to be not good enough to include--the nickel assets acquired globally will place NewCo in a strong position in the market with the commodity portfolio that BHP has announced. Indeed, aluminum looks to be on the rise, with nickel having already made a big impact throughout the resource industry.

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