BHP Billiton taps City for mining spin-off

Senior management from BHP Billiton have begun sounding out investors over its $13bn (£8.7bn) spin-off of unwanted assets, the biggest the mining industry has ever seen.

The company had it first roadshow with City fund managers last week to test appetite for South32, a giant unwanted collection of aluminium, manganese, coal and nickel mines and smelters, which it is planning to list as a separate entity.

South32’s new chief executive, Graham Kerr, and chief financial officer, Brendan Harris, met a number of institutional investors as it seeks to ensure a smooth demerger from its parent later this year.

Initial response to potential secondary listing was said to have been positive. If the demerger is approved by BHP Billiton’s shareholders in May, South32’s stock will sit outside the FTSE on the so-called official list.

“People were interested because it’s a different kind of mining proposition for the City,” said a source.

South32’s management team were in front of the City for the first time since issuing documents earlier this month on the spin-off.

Listed primarily in Sydney, the company will have fully-fungible secondary listings in Johannesburg and London and a gross value estimated at around $26.7bn by BHP.

It will also hit the market with very little debt, carrying just $674m on its balance sheet initially. It will also have access to an untapped $1.5bn credit line that will allow it to fund organic growth. Analysts have valued the business at around $13bn.

“We expect to see the bulk of South32’s commodities achieve an above-global inflation growth rate over the next five years,” said brokers at Macquarie late last week. It has given the company, which will be headquartered in Perth, a valuation of A$37.34 (£19.50) per share.