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BHP Billiton to Restructure Asset Portfolio, Shares Gain

Zacks Equity Research

Pursuant to its business simplification strategy, BHP Billiton Limited (BHP) recently communicated an intention to trim down its asset portfolio. The news triggered positive reactions on Aug 15, with the stock gaining nearly 1.8% on NYSE and 1.2% on London exchange.

The mining giant will demerger certain of its mining assets that will probably include its nickel, manganese and aluminium businesses. These assets will be spun off to form a new entity/company, tentatively worth $8 billion.

BHP Billiton Limited’s aluminium business includes Hillside, Bayside and Mozal smelters in South Africa, integrated bauxite mine and alumina refinery in Western Australia and aluminium refinery and smelter in South America. The company’s manganese assets are located in Australia and South America, while its nickel assets include Nickel West in Australia and Cerro Matoso in Colombia.

The restructuring will enable BHP Billiton Limited to concentrate on its iron-ore, copper, coal and petroleum businesses, which generate a major chunk of its profit. In addition, the company will contemplate including potash business as it fifth major business line. In fiscal 2013, the company sourced nearly 89% of its total revenue from these five businesses.

Over the last few years, BHP Billiton Limited has been streamlining its businesses by hiving off non-profitable assets and in turn, improving profitability and enhancing shareholders’ return. In fiscal 2013, the company divested nearly $6.5 billion worth assets in the U.K., the U.S., South Africa, Australia and Canada.

BHP Billiton Limited is scheduled to release fiscal 2014 results on Aug 19. The Zacks Consensus Estimate for the year is pegged at $5.26 per American Depository Shares (ADS), reflecting a year-over-year hike of 19.1%.

With a market capitalization of $193.0 billion, BHP Billiton Limited currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Impala Platinum Holdings Ltd. (IMPUY), U.S. Silica Holdings, Inc. (SLCA) and Dominion Diamond Corp. (DDC). While Impala Platinum Holdings and U.S. Silica Holdings sport a Zacks Rank #1 (Strong Buy), Dominion Diamond Corp. holds a Zacks Rank #2 (Buy).

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