It will cost almost $1 billion to create the BHP spinoff South32

Worsley Alumina. Image: BHP Billiton.

The demerger of BHP Billiton, the world’s biggest mining company, to create the spinoff South32 will cost $US738 million ($A965 million), according to the company’s forecasts released today.

The key costs are stamp duty and cash tax of $US339 million, South32 set up and separation of $US254 million, and execution costs of $US145 million, including $US30 million to financial advisers.

However, BHP Billiton expects its new streamlined organisation to generate cost savings of about $US100 million a year with 90% of this by the end of the 2017 financial year.

This saving is in addition to the reduction in costs resulting from the removal of the South32 businesses.

BHP Billiton believes it will be able to further improve the performance of its core operations and achieve productivity benefits beyond the US$4 billion a year of gains by the end of the 2017 financial year already targeted.

Following the demerger, BHP will focus on iron ore, copper, petroleum, coal (mainly metallurgical coal in Queensland and thermal coal in New South Wales) and potash.

The smaller new company South32, headquartered in Perth, would hold the aluminium and manganese businesses, nickel in Cerro Matoso, energy coal in South Africa, metallurgical coal in Illawarra and silver-lead-zinc mines in Cannington.

The proposal goes to meetings of shareholders on May 6 in Perth and London.

BHP Billiton shareholders will get one South32 share for every BHP Billiton share.

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