BHP: five things to watch out for

By sending them off into their own company, BHP believes those assets will be better valued by the market and will have access to the sort of development money they just can’t win when competing with superstar divisions like BHP’s Pilbara iron ore business.

BHP shareholders will be given an instant stake in the new company, which would likely rank among the top five miners in Australia by market capitalisation if, as expected, it is listed here.

The company is likely to spend more than a $US1 billion on further ‘‘debottlenecking’’ in the Pilbara, where iron ore export gains are being achieved by improving the efficiency of the transport system rather than any glamourous new project.

BHP spent less than expected on Jansen during the 2014 financial year, and also allowed an associated port lease to lapse, fuelling perceptions that progress on the division will be glacial.

BHP Billiton is tipped to begin rewarding shareholders, and could also break-off its least productive divisions to form a brand new company owned by BHP shareholders.

BHP’s efforts to find shale liquids in far western Texas, known as the Permian basin, are also expected to attract more spending, while the Spence Hypogene project in Chile ranks as BHP’s most attractive spending option in the copper division.

BHP may have cut back spending on new projects and exploration by more than 25 per cent over the past couple of years, but it is still expected to have about $US15 billion to play with over the next 12 months.

BHP has far more investment options on its books than it could ever hope to fulfill, which is partly why it will likely spin-out a collection of non-core assets into a new company this afternoon.

BHP’s push into the potash market began to ramp up a year ago today, when it announced it would gradually spend $US2. 6 billion developing a mine in Canada.

If one of BHP’s three shareholder groups (the company has listings in Australia, London and South Africa) is excluded from Spinco, it could get an exclusive round of buybacks as compensation.

Original expectations were for BHP to start $US3 billion worth of share buybacks today, and gradually roll out more buybacks over coming years.

Read more here: SMH

    

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