Smaller is beautiful in mining nowadays—even for the sector's behemoths.
Mining companies are shedding assets. The sector cut its capital spending plans by $17 billion in the 12 months to September, notes Citigroup. Even minor selling stake, like Glencore Xstrata sale of its Frieda River copper project, has been welcomed as demonstrating a focus on core operations and investment discipline.
BHP Billinton,the Anglo-Australian miner has flagged plans to prune its oil and gas business, selling U.S. non-core acreage and potentially shedding other assets from Pakistan to Algeria. Across its entire business, BHP has already agreed sales totaling about $6.5 billion since the beginning of its last fiscal year, selling diamond, copper and uranium assets.
Mining companies are shedding assets. The sector cut its capital spending plans by $17 billion in the 12 months to September, notes Citigroup. Even minor selling stake, like Glencore Xstrata sale of its Frieda River copper project, has been welcomed as demonstrating a focus on core operations and investment discipline.
BHP Billinton,the Anglo-Australian miner has flagged plans to prune its oil and gas business, selling U.S. non-core acreage and potentially shedding other assets from Pakistan to Algeria. Across its entire business, BHP has already agreed sales totaling about $6.5 billion since the beginning of its last fiscal year, selling diamond, copper and uranium assets.
But BHP should think about wielding its scythe elsewhere. While his predecessor expressed reluctance to get out of particular commodities, new chief executive Andrew Mackenzie shows no such qualms. His focus is on improving productivity in BHP's "four pillars": iron ore, copper, coal and petroleum.
That leaves BHP's assets in aluminium, manganese and nickel out in the cold. The trio contributed less than 1% of operating profit last year; they didn't merit a single slide in Mr. Mackenzie's presentation at August's full-year results.
There may be other reasons to sell. BHP invested $750 million in the three commodities last year, about 4% of its total capital expenditure bill. The three offer little growth, except through a recovery in beaten-down prices. And BHP needs to win over investors to its Jansen potash development, a long term, multi-billion dollar project of the kind shareholders currently hate. Freeing up capital in unloved corners can only help its case.
The three commodities, which generated about $900 million in earnings before interest, tax, depreciation and amortization last year, could be spun off to shareholders together, worth perhaps $5 -$7 billion.
Such a move would hardly be transformative for BHP. But it would be a statement of intent in a market where Glencore Xstrata has been rewarded because investors believe a return to focus on core operations. Small can be beautiful.
