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Demerger to Simplify BHP Billiton
BHP Billiton Plc
Registration number 3196209
Registered in England and Wales
Share code: BIL
ISIN: GB0000566504
NEWS RELEASE
Release Time IMMEDIATE
Date 17 March 2015
Number 04/15
DEMERGER TO SIMPLIFY BHP BILLITON
AND UNLOCK SHAREHOLDER VALUE
THIS IS NOT A PROSPECTUS. YOUR ATTENTION IS DRAWN TO THE IMPORTANT
INFORMATION ON PAGE 8.
• BHP Billiton Board recommends shareholders vote in favour of the demerger of
South32
• With a more focused portfolio, BHP Billiton will be better placed to achieve further
productivity benefits in its core assets
• South32 will be a substantial company with a diversified portfolio of high quality,
cash generative assets and a strong balance sheet
• Eligible shareholders will receive one South32 share for every BHP Billiton share
• BHP Billiton will maintain its commitment to a progressive dividend policy and
does not plan to rebase its dividend following the demerger, implying a higher
payout ratio
• South32 intends to distribute a minimum of 40% of Underlying Earnings as
dividends to its shareholders following each six month reporting period
• Shareholder vote scheduled for 6 May 2015
The BHP Billiton Board today recommended shareholders approve the proposed demerger of
South32 at the shareholder meetings to be held on 6 May 2015 (1). The Board believes that with a
more focused portfolio, BHP Billiton will be better placed to achieve further productivity benefits in its
core portfolio, while creating a substantial new company, South32.
BHP Billiton Chairman, Jac Nasser said “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.
“Following the demerger, BHP Billiton will remain one of the largest diversified global resources
companies and its strategic priorities will not change. The demerger simplifies BHP Billiton and
enables us to further focus on generating value from our core portfolio.
“We believe that South32’s portfolio of high quality assets will benefit from the focus of a dedicated
board and management team. South32 will begin with a strong balance sheet, will be able to adopt an
independent business strategy and will have the opportunity to pursue growth and investment
opportunities that may not otherwise be pursued if its assets remain within BHP Billiton.
“Having assessed a number of alternatives, the BHP Billiton Board considers the demerger to be the
preferred approach to achieving simplification of our portfolio and maximising shareholder value. The
Board unanimously recommends that shareholders vote in favour of the demerger,” Mr Nasser said.
A simpler BHP Billiton
Today BHP Billiton has interests in 41 assets across 13 countries and 6 continents. The demerger
materially simplifies the portfolio in a single step and is significant progress towards achieving BHP
Billiton’s identified core portfolio of 19 assets across eight countries and three continents. This
portfolio, comprising our exceptionally large long-life petroleum, copper, iron ore, coal and potash
assets, collectively generated 96 per cent of the Group’s Underlying EBIT in the 2014 financial year.
BHP Billiton Chief Executive Officer, Andrew Mackenzie said “Simplification of our portfolio is the
logical strategy to maximise the value of our core tier one assets. The demerger will create a more
focused portfolio of large-scale operated assets with a smaller geographic spread and a higher
proportion of common characteristics. With a simplified portfolio we intend to streamline our
organisational model, further standardise our common systems and better leverage our technical
expertise across our operations.
“More challenging markets demand a sharper focus on the businesses that drive the majority of our
earnings and the push for productivity must continue. Having achieved considerable productivity gains
to date, future gains will be harder won. We believe that the simplification of our portfolio has been,
and will continue to be, a key driver of delivering and sustaining productivity improvements. The
demerger will materially simplify our portfolio in a single step and in the longer term allow us to further
focus on delivering gains beyond the US$4 billion per annum by the end of the 2017 financial year
already targeted.”
Mr Mackenzie concluded, “We remain confident that the diversification and quality of the core portfolio
and our strong balance sheet will continue to support our solid A credit rating. We will maintain our
progressive dividend policy and do not plan to rebase the dividend as a result of the demerger, thus
implying a higher payout ratio. In addition, and subject to its cash flow priorities, South32 plans to
distribute a minimum of 40 per cent of Underlying Earnings to shareholders from the next financial
year.”
South32, making a difference from the ground up
South32 will be a globally diversified metals and mining company with a significant presence in each
of its major commodities. The majority of South32’s assets are located in the southern hemisphere
with its two regional centres – Australia and South Africa – linked by the thirty-second parallel line of
latitude. The company’s name represents this footprint and its regional approach to managing its
operations.
South32’s high-quality, well managed asset portfolio:
• is diversified across five countries and produces alumina, aluminium, coal, nickel, manganese,
silver, lead and zinc
• is comprised of large assets, the majority of which are competitively positioned in the first or
second quartile of their respective industry cost curves
• has meaningful reserve lives to support future production without the immediate need for material
incremental capital expenditure
• has been cash generative over the last three years despite falling commodity prices.
South32’s head office will be in Perth, Australia. A regional head office and global shared services
centre will be located in Johannesburg, South Africa. South32 intends to adopt a tailored regional
operating model which combines the management of the asset portfolio into regional business units to
enable more authority to be devolved locally, reducing the size of South32’s corporate centre and
facilitating greater alignment with regional stakeholders. This is expected to support better decision
making at a local level and lower functional costs.
South32 intends to create a distinctive culture and identity suited to its scale and requirements. By
being a disciplined manager of capital and supporting industry leading health, safety, environment and
community programs, South32 intends to create strong alignment with employees, communities, host
governments and shareholders.
South32 will target an investment grade credit rating through the cycle and its capital structure has
been developed with reference to ratings criteria published by ratings agencies. The capital structure
has also been carefully designed to take into account the nature and scale of South32’s business and
with the objective of South32 being well positioned to pursue value accretive investment opportunities
that meet its strict financial criteria. South32’s pro forma balance sheet as at 31 December 2014
includes net debt of US$674 million, including finance leases. As at 31 December 2014, on a pro
forma basis, South32’s closure and rehabilitation provisions were US$1,542 million.
The South32 dividend policy will be determined by the South32 Board at its discretion, having regard
to South32’s first two priorities for cash flow, being a commitment to maintain safe and reliable
operations and an intention to maintain an investment grade credit rating through the cycle. South32
intends to distribute a minimum of 40 per cent of Underlying Earnings as dividends to its shareholders
following each six month reporting period, beginning from the period ending 31 December 2015.
Consistent with South32’s priorities for cash flow and commitment to maximise total shareholder
returns, other alternatives including special dividends, share buy-backs and high return investment
opportunities will compete for excess capital.
South32 Chairman Elect, David Crawford said “South32 comprises some of the highest quality
operations in their respective industries. We have a clear strategy to improve performance as we seek
to create strong alignment with our global shareholder base.
“The Directors and management team collectively have extensive mining, exploration, commercial
and financial experience plus valuable expertise in the countries in which we operate. Members of the
senior management team bring with them a track record of improving earnings through cost
management, productivity enhancements and investment. We are determined to be a safe and
consistent operator of our assets and to manage capital in a disciplined fashion,” Mr Crawford said.
South32 Chief Executive Officer Elect, Graham Kerr 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 continue to prioritise safety above all else as we implement our tailored strategy and
regional operating model that we believe will lower costs and improve productivity. All stakeholders
benefit from a sustainable business and we understand the importance of enduring environmental,
health, safety and social programs.
“We will manage our business with a view to generating strong cash returns. 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,” Mr Kerr said.
Advantages and disadvantages of the demerger
The BHP Billiton Board believes that the value of both BHP Billiton’s and South32’s assets will be
maximised if the South32 assets are separated from BHP Billiton.
It is the view of the Board that South32’s assets will benefit from the focus of a dedicated board and
management team. It will be able to adopt an independent business strategy and have the opportunity
to pursue value accretive investment opportunities that may not otherwise be pursued if South32’s
assets remained within BHP Billiton.
The Board further believes that BHP Billiton will achieve functional cost reductions as a result of the
organisational streamlining to follow the demerger (outlined below), and in the longer term the
company will derive substantial benefits through the increased management focus that will result from
the simplification of its portfolio. The Board commissioned Independent Expert, Grant Samuel, to
review the proposed demerger and provide an opinion as to whether the proposal is in the best
interests of shareholders. The Independent Expert concluded that the benefits of the demerger clearly
outweigh the disadvantages and BHP Billiton shareholders are likely to be better off if the demerger
proceeds.
The total one-off costs of implementing the demerger are estimated to be approximately US$738
million (2) (US$641 million after tax). These comprise stamp duty and cash tax of US$339 million,
South32 set up and separation costs of US$254 million and execution costs of US$145 million,
including financial advisor costs of US$30 million.
With a simplified portfolio, BHP Billiton intends to streamline its organisational model and expects this
to generate functional cost savings of approximately US$100 million (pre-tax) per annum, with 90 per
cent of this saving achieved 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. One-off restructuring costs of
approximately US$55 million (pre-tax) are expected to be incurred in connection with implementing
the organisational changes required to achieve these savings.
In the longer term, following the simplification of its portfolio and streamlining of organisational design,
BHP Billiton believes it will be able to further focus on improving the performance of its core
operations and achieving substantial productivity benefits beyond the US$4 billion per annum of
productivity-led gains (by the end of the 2017 financial year) already targeted. BHP Billiton also
believes that the ongoing simplification of its portfolio has been, and will continue to be, an important
factor in delivering and sustaining productivity improvement.
South32 is expected to incur additional costs of approximately US$60 million (pre-tax) per annum
associated with operating as a stand-alone listed company relative to those incurred operating the
South32 businesses as part of the BHP Billiton Group. However, these additional ongoing overhead
costs are expected to be outweighed in the near term by the ongoing savings generated by South32’s
regional model.
Demerger mechanism
The proposed demerger would be effected via a distribution of South32 shares by way of an in-specie
dividend to shareholders in both BHP Billiton Limited and BHP Billiton Plc. Eligible BHP Billiton
shareholders will receive one South32 share for every BHP Billiton share held on the applicable
record date.
South32 will apply for its shares to be admitted to trading on the ASX, LSE and JSE and will have an
over-the-counter ADS program in the United States.
Approval for the demerger is being sought from shareholders. For the proposed demerger to proceed,
a demerger resolution must be approved by an ordinary resolution of BHP Billiton shareholders
(Limited and Plc) voting on a joint electorate basis.
Meetings for shareholders to vote on the proposed demerger will be held on 6 May 2015 in Perth and
London. The shareholder meetings will be conducted simultaneously.
Share Sale Facility
A Share Sale Facility will be established for certain eligible shareholders who hold 10,000 or fewer
BHP Billiton shares. These investors may elect to have all the South32 shares that they receive
transferred to BHP Billiton Limited and sold by the sale agent and the proceeds remitted to them
following the demerger.
Overview of South32
On demerger, South32 will be a globally diverse metals and mining company with a portfolio of assets
producing alumina, aluminium, coal, manganese, nickel, silver, lead and zinc.
South32’s portfolio will comprise:
• Worsley Alumina: an 86 per cent interest in an integrated bauxite mining and alumina refining
operation located in Western Australia, Australia;
• South Africa Aluminium: a 100 per cent interest in the Hillside smelter near Richards Bay, South
Africa;
• Mozal Aluminium: a 47.1 per cent interest in the Mozal Aluminium smelter located near Maputo,
Mozambique;
• Brazil Aluminium: a 14.8 per cent interest in the Mineração Rio do Norte open-cut bauxite mine
(MRN Mine), as well as a 36 per cent interest in the Alumar alumina refinery and a 40 per cent
interest in the Alumar aluminium smelter (together with certain interests in ancillary facilities and
lands);
• South Africa Energy Coal: a 90 per cent interest in four operating energy coal mines in the
Witbank region in the Mpumalanga province of South Africa;
• Illawarra Metallurgical Coal: a 100 per cent interest in three underground metallurgical coal
mines located near Wollongong in New South Wales, Australia;
• Australia Manganese: a 60 per cent interest in the Groote Eylandt Mining Company (GEMCO)
pen-cut manganese mine and the Tasmanian Electro Metallurgical Company (TEMCO)
manganese alloy plant. GEMCO is located in the Northern Territory, Australia near port facilities at
Milner Bay, and TEMCO is located in Tasmania, Australia, near the Bell Bay wharf;
• South Africa Manganese: a 44.4 per cent effective interest in the Mamatwan open-cut mine and
the Wessels underground mine (collectively known as the Hotazel Mines) and a 60 per cent
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 per cent interest in an open-cut lateritic nickel mine and ferronickel
smelter located near Montelibano, in the Córdoba Department in northern Colombia;
• Cannington: a 100 per cent interest in a silver, lead and zinc underground mine and concentrator
operation located in northwest Queensland, Australia, approximately 200km southeast of Mount
Isa.
The South32 businesses comprised gross assets of US$26,723 million as at 31 December 2014 and
contributed net profit after tax of US$738 million for the 6 months ending 31 December 2014 and
US$217 million for the 12 months ending 30 June 2014 based on the historical combined financial
information.
South32 strategy
South32 intends to maximise value for shareholders by being a safe, lean, responsible and
predictable operator of its portfolio of high quality diversified metals and mining assets, and by
managing its capital in a disciplined way.
South32 intends to meet these objectives by pursuing the following strategic priorities:
• Establish a distinctive, powerful culture and identity
• Enhance environmental, health, safety and social programs
• Embed an efficient operating model that is aggregated at the regional level
• Reduce costs and improve productivity
• Create strong alignment with investors
• Develop and pursue investment opportunities
• Continually seek to optimise the portfolio.
South32 Board of Directors
The nominated South32 Directors are experienced and respected directors with a diverse range of
skills, background and expertise, led by David Crawford as Chairman. South32 intends to appoint
additional Non-executive Directors in time.
It is intended that the initial composition of the South32 Board following the demerger will reflect a
range of geographical backgrounds, including Australia, South Africa and the United Kingdom.
Name Position
David Crawford Chairman and Independent Non-executive Director
Graham Kerr Chief Executive Officer and Executive Director
Keith Rumble Independent Non-executive Director
Xolani Mkhwanazi Non-executive Director
South32 senior management
Name Position
Graham Kerr Chief Executive Officer and Executive Director
Brendan Harris Chief Financial Officer
Ricus Grimbeek President and Chief Operating Officer, Australia
Mike Fraser President and Chief Operating Officer, Africa
Nicole Duncan Chief Legal Officer and Company Secretary
(1) A Shareholder Circular containing detail of the demerger is available on the BHP Billiton website at
www.bhpbilliton.com/demerger and will be sent to shareholders in due course with notices convening
the shareholder meetings.
(2) The one-off costs referred to are only estimates and the actual costs incurred may differ from
these estimated costs and the difference may be significant. Further information is contained in the
Shareholder Circular described in the footnote above.
IMPORTANT INFORMATION
This announcement is not a prospectus or listing document in any jurisdiction but constitutes an
advertisement in relation to South32 Limited (“South32”) for the purposes of the UK Prospectus Rules.
Any investment decision in relation to South32 should be made only on the basis of the information
contained in the Listing Document for the relevant jurisdiction. The “Listing Documents”, which have
been published today and are available, subject to applicable securities laws, on the BHP Billiton
website at www.bhpbilliton.com/demerger, comprise a prospectus which has been approved by the
UK Listing Authority in connection with the proposed admission of South32’s ordinary shares to the
standard listing segment of the Official List of the UK Financial Conduct Authority and to trading on the
Main Market for listed securities of London Stock Exchange plc, an information memorandum in
connection with South32’s application for the admission of its ordinary shares to listing on the
Australian Securities Exchange and a pre-listing statement in connection with South32’s application
for the admission of its ordinary shares to listing on the Johannesburg Stock Exchange. Subject to
applicable securities laws, shareholders may obtain printed copies of the Listing Document applicable
to their jurisdiction free of charge by calling the Shareholder Information Line (details below).
Nothing in this announcement should be construed as either an offer to sell or a solicitation of an offer
to buy or sell BHP Billiton securities or securities in South32 in any jurisdiction, or be treated or relied
upon as a recommendation (other than the recommendation of the Board to vote in favour of the
resolution to approve the demerger at the shareholder meetings scheduled for 6 May, 2015) or advice
by BHP Billiton.
UK Financial Services and Markets Act 2000 approval
The contents of this announcement, which have been prepared by and are the sole responsibility of
BHP Billiton, have been approved by Goldman Sachs International solely for the purposes of section
21 of the United Kingdom’s Financial Services and Markets Act 2000 (as amended). Goldman Sachs
International, which is authorised by the Prudential Regulation Authority and regulated by the
Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, is acting
for BHP Billiton and no one else in connection with the proposed demerger of South32 and will not be
responsible to anyone other than BHP Billiton for providing the protections afforded to clients of
Goldman Sachs International, or for giving advice in connection with the proposed demerger of
South32 or any matter referred to herein.
Forward looking statements
This announcement contains forward looking statements, including statements regarding plans,
strategies and objectives of management, future performance and future opportunities. These forward
looking statements are not guarantees or predictions of future performance, and involve known and
unknown risks, uncertainties and other factors, many of which are beyond our control (or will be
beyond the control of South32), and which may cause actual results to differ materially from those
expressed in the statements contained in this announcement. The Shareholder Circular (containing
information about the proposed demerger and available on the BHP Billiton website at
www.bhpbilliton.com/demerger) and the Listing Documents specify factors that may cause actual
results to differ from the forward-looking statements in this announcement. Neither BHP Billiton nor
South32 undertakes any obligation to update or review any forward-looking statements.
No financial or investment advice – South Africa
BHP Billiton and South32 do not provide any financial or investment ‘advice’ as that term is defined in
the South African Financial Advisory and Intermediary Services Act, 37 of 2002, and we strongly
recommend that you seek professional advice.
No SEC or Exchange Act registration – United States
The demerger of South32 from BHP Billiton will not be registered with the US Securities and
Exchange Commission (SEC) under the US Securities Act of 1933, as amended. BHP Billiton expects
South32 to qualify for the exemption from registration under Rule 12g3-2(b) of the US Securities
Exchange Act of 1934, as amended (“Exchange Act”), and accordingly the South32 shares will not be
registered under the Exchange Act and South32 will not be subject to the reporting requirements of
the Exchange Act.
Shareholder Information
Shareholder Information Lines are available as below:
Australia:
Telephone: 1300 582 743 (within Australia) or +61 3 9415 4808 (outside Australia)
United Kingdom:
Telephone: 0844 472 7001 (within the United Kingdom) or +44 844 472 7001 (international)
South Africa:
Telephone: 086 1100 634 (within South Africa) or +27 11 870 8216 (international)
United States:
Telephone: 877 248 4237 (within the United States) or +1 781 575 4555 (international)
Further information on BHP Billiton can be found at: www.bhpbilliton.com.
Transaction sponsor: UBS South Africa (Pty) Limited
Media Relations Investor Relations
Australia Australia
Emily Perry Tara Dines
Tel: +61 3 9609 2800 Mobile: +61 477 325 803 Tel: +61 3 9609 2222 Mobile: +61 499 249 005
email: Emily.Perry@bhpbilliton.com email: Tara.Dines@bhpbilliton.com
Paul Hitchins Andrew Gunn
Tel: + 61 3 9609 2592 Mobile: + 61 419 315 001 Tel: +61 3 9609 3575 Mobile: +61 402 087 354
email: Paul.Hitchins@bhpbilliton.com email: Andrew.Gunn@bhpbilliton.com
Eleanor Nichols Peter Harris (South32)
Tel: +61 3 9609 2360 Mobile: +61 407 064 748 Tel: +61 8 6321 9954 Mobile: +61 476 559 190
email: Eleanor.Nichols@bhpbilliton.com email: peter.harris3@bhpbilliton.com
United Kingdom United Kingdom and South Africa
Ruban Yogarajah Jonathan Price
Tel: +44 20 7802 4033 Mobile: +44 7827 082 022 Tel: +44 20 7802 4131 Mobile: +44 7990 527 726
email: Ruban.Yogarajah@bhpbilliton.com email: Jonathan.H.Price@bhpbilliton.com
Jennifer White Dean Simon
Tel: +44 20 7802 7462 Mobile: +44 7827 253 764 Tel: +44 20 7802 7461 Mobile: +44 7717 511 193
email: Jennifer.White@bhpbilliton.com email: Dean.Simon@bhpbilliton.com
Americas Americas
Ruban Yogarajah James Agar
Tel: +44 20 7802 4033 Mobile: +44 7827 082 022 Tel: +1 212 310 1421 Mobile: +1 347 882 3011
email: Ruban.Yogarajah@bhpbilliton.com email: James.Agar@bhpbilliton.com
Joseph Suarez
Tel: +1 212 310 1422 Mobile: +1 646 400 3803
email: Joseph.Suarez@bhpbilliton.com
BHP Billiton Limited ABN 49 004 028 077 BHP Billiton Plc Registration number 3196209
Registered in Australia Registered in England and Wales
Registered Office: Level 16, 171 Collins Street Registered Office: Neathouse Place
Melbourne Victoria 3000 Australia London SW1V 1LH United Kingdom
Tel +61 1300 55 4757 Fax +61 3 9609 3015 Tel +44 20 7802 4000 Fax +44 20 7802 4111
Members of the BHP Billiton Group which is headquartered in Australia
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