Here's what the BHP spinoff South32 will look like, including its dividend policy

Getty/Paula Bronstein

South32, the spinoff company from BHP’s proposed demerger, will have $US8.3 billion of revenue and intends to distribute a minimum of 40% of earnings as dividends to its shareholders.

This is below BHP’s current dividend ratio which is running at 48%.

The BHP Billiton board of directors today recommended shareholders approve the proposed demerger of South32 at a shareholder meetings on May 6 in Perth and London.

Shareholders will get one South32 share for each BHP share they hold.

BHP chairman Jac Nasser says: “The demerger will simplify BHP Billiton and has the potential to unlock shareholder value, while creating a new global diversified metals and mining company with a significant industry presence in each of its major commodities.”

The majority of South32’s assets are in the southern hemisphere with its two regional centres, Australia and South Africa, linked by the thirty-second parallel line of latitude. That’s why it’s called South32.

South32’s asset portfolio will include, across five countries, alumina, aluminium, coal, nickel, manganese, silver, lead and zinc. It’s head office will be in Perth.

Here’s what the company will look like:

Graham Kerr, South32 Chief Executive Officer Elect, said: “We are building a new company from the ground up. We will have competitive assets, significant reserve lives and financial strength. We will benefit from the best of BHP Billiton’s approach to productivity and will create a culture that empowers our people.”

South32 will have assets of $US26.723 billion and would have had a net profit after tax of US$738 million for the 6 months to the end of December. Net debt will be about $US674 million.

“We will manage our business with a view to generating strong cash returns,” Kerr said. “To ensure alignment with our investors, we intend to adopt a dividend policy based on a payout ratio and we will ensure any excess capital is allocated to the option that maximises total shareholder returns.”

South32’s portfolio:

  • Worsley Alumina: an 86% interest in an integrated bauxite mining and alumina refining operation located in Western Australia;
  • South Africa Aluminium: a 100% interest in the Hillside smelter near Richards Bay, South Africa;
  • Mozal Aluminium: a 47.1% interest in the Mozal Aluminium smelter located near Maputo, Mozambique;
  • Brazil Aluminium: a 14.8% interest in the Mineração Rio do Norte open-cut bauxite mine (MRN Mine), as well as a 36% interest in the Alumar alumina refinery and a 40% interest in the Alumar aluminium smelter (together with certain interests in ancillary facilities and lands);
  • South Africa Energy Coal: a 90% interest in four operating energy coal mines in the Witbank region in the Mpumalanga province of South Africa;
  • Illawarra Metallurgical Coal: a 100% interest in three underground metallurgical coal mines located near Wollongong;
  • Australia Manganese: a 60% interest in the Groote Eylandt Mining Company (GEMCO) open-cut manganese mine and the Tasmanian Electro Metallurgical Company (TEMCO) manganese alloy plant. GEMCO is located in the Northern Territory near port facilities at Milner Bay, and TEMCO is located in Tasmania near the Bell Bay wharf;
  • South Africa Manganese: a 44.4% effective interest in the Mamatwan open-cut mine and the Wessels underground mine (collectively known as the Hotazel Mines) and a 60% interest in the Samancor Manganese Metalloys alloy plant (Metalloys). The Hotazel Mines are located near the town of Kuruman, South Africa;
  • Cerro Matoso: a 99.94% interest in an open-cut lateritic nickel mine and ferronickel smelter located near Montelibano, in the Córdoba Department in northern Colombia;
  • Cannington: a 100% interest in a silver, lead and zinc underground mine and concentrator operation located in northwest Queensland, Australia, approximately 200km southeast of Mount Isa

And this is how much each will contribute to South32 earnings:

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