There was a general murmur of approval on release of the details around South32 - BHP Billiton's (BLT) upcoming mining spin-off. The new entity will be made up of aluminium, coal, nickel and zinc operations spread across locales in Australia, South Africa, Brazil and Colombia.
South32 will start life with net debt amounting to just $674m (£455m), equivalent to just 2.7 per cent of the parent group's burden at the end of 2014. The spin-off will also take on around $1.5bn in provisions that must be put aside for mine closure and remedial costs.
If the deal is approved on 6 May, BHP Billiton shareholders will receive one South32 share for each BHP Billiton share currently held, with small shareholders (10,000 shares or less) entitled to sell their South32 shares through BHP Billiton and receive cash proceeds following the demerger.
For BHP Billiton the demerger is expected to eventually generate cost savings of $100m a year, as the group will be able to focus on its residual iron ore, coal, energy, copper and potash assets. The demerger will cost around $738m ($641m post-tax), around half of which is stamp duty and set-up expenses.
South32 had gross assets of $26.7bn at the December half year, although the relatively short productive life of some of its mining assets has been open to criticism. Nevertheless, the demerged miner will have access to a $1.5bn revolving credit facility, which should facilitate future growth opportunities.
