Mining giant BHP to spin off South32 with modest debt

The world's biggest miner BHP Billiton said Tuesday that its proposed spin-off South32 would start life with only modest net debt, allowing the new company room to expand and open additional mines.

BHP is recommending shareholders vote in favour of the move at meetings in Perth and London on May 6.

"The demerger will simplify BHP Billiton and has the potential to unlock shareholder value, while creating a new global diversified metals and mining company with a significant industry presence in each of its major commodities," chairman Jac Nasser said.

The demerger is aimed at allowing BHP to focus on its core long-life operations -- iron ore, copper, petroleum, coal and potash -- which generate most of its profit, separating them from smaller assets.

South32's operations will include aluminium, coal, nickel, manganese, silver, lead and zinc with most of its mines in the southern hemisphere.

"South32's pro forma balance sheet as at 31 December 2014 includes net debt of US$674 million, including finance leases," BHP said.

That would be just a fraction of the company's expected market value and will give South32 room to take on new debt and expand, said OptionsXpress market analyst Ben Le Brun.

"So, I think they'll actively pursue growth aspirations," he said.

The new entity, with gross assets worth US$26.7 billion, will be listed in Sydney, London, and Johannesburg.

Under the proposal, those eligible will retain their existing shareholding in BHP Billiton and receive a new share in South32 for every BHP one they own.

If the deal goes ahead, the number of countries BHP will operate in will shrink from 13 to eight, and instead of being spread across six continents it will only be in three.

In a presentation, it said the demerger would see a "modest reduction in net debt" for BHP Billiton, which at February's interim result was US$24.9 billion.

The total one-off costs of implementing the demerger are estimated to be about US$738 million. But BHP expects it will bring cost savings of some US$100 million a year.