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BHP Billiton Reveals New Details for South32; How Will it Impact the Market?

BHP Billiton revealed last year it was going back to its roots by demerging a group of high quality assets (aluminium, coal, manganese, nickel and silve...

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|Mar 20|magazine8 min read

BHP Billiton revealed last year it was going back to its roots by demerging a group of high quality assets (aluminium, coal, manganese, nickel and silver) into an independent global metals and mining company, South32.

Earlier this week, BHP published more than 1,500 pages of documents revealing the assets and prospects of South32.

The company will start life with a net debt of around $674 million when it officially splits from BHP Billiton later this year. Once approved, South32 will inherit roughly $1.5 billion in provisions for mine closure and rehabilitation costs. The company states the demerger will cost around $738 million, which will include a large chunk of South32 set up costs and financial advertiser costs of $30 million.

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Its aluminum assets will be spread across Australia, Africa and Brazil; coal assets in the Illawarra region of NSW and South Africa; manganese mines in Australia and South Africa; a nickel mine and smelter in Columbia; and a silver, lead and zinc mine west of Mount Isa.

The demerger will be voted on by BHP Billiton shareholders in simultaneous meetings in Perth and London on May 6. If the deal is approved, shareholders will receive one South32 share for each BHP Billiton share they currently own.

South32 is named after the parallel of latitude that connects Perth, its Australian home city, and South Africa, where extensive operations will be held. The company is expected to become one of the top 10 global mining companies.

Impact on the market

South32 has potential to greatly impact the nickel and manganese markets.

The company’s nickel portfolio will include the Cerro Matoso operation in Columbia, which has a nominal capacity of around 50kt. Actual production, however, has exceeded this amount in recent years. The operation is one of the most cost-effective laterite mining operations in the world. South32 is inheriting a more stable side of BHP’s nickel business.

In terms of manganese, South32 will have control of all BHP’s assets, making it the largest manganese ore producer in the world. The outcome of the demerger will likely see manganese become a more significant part of South32’s revenue and profit base, which will have an impact on other manganese miners as they try to create new, strategic approaches to mining the metal.

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