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BHP polishes up nickel unit as demerger talk swirls

04/10/2014 | 10:11pm EDT
A promotional sign adorns a stage at a BHP Billiton function in central Sydney

SYDNEY (Reuters) - Breakthroughs in the way BHP Billiton (>> BHP Billiton Limited) processes nickel ores could help the world's biggest miner find a buyer for its ailing Nickel West division in Australia.

SYDNEY (Reuters) - Breakthroughs in the way BHP Billiton (>> BHP Billiton Limited) processes nickel ores could help the world's biggest miner find a buyer for its ailing Nickel West division in Australia.

Nickel West is among businesses that also include aluminium and manganese which BHP has grouped into a single division set aside in 2012 for underperforming assets deemed non-core to its portfolio.

BHP has said it is actively studying the "next phase of simplification" of the company but declined to comment on media reports that senior executives favoured a demerger.

Chief Executive Andrew Mackenzie has said BHP will focus on its large iron ore, copper, coal and petroleum businesses, while selling off smaller, less profitable operations.

Macquarie Bank last month in a research note put a value of $4.6 billion (2.7 billion pounds) on the nickel assets.

Improvements in the way BHP mines nickel together with better market dynamics and exploration successes could save Nickel West from closure.

A programme at Nickel West to extract full value from ore that would otherwise be uneconomic to treat due to high contents of talc is opening up more of BHP's rich Mount Keith and Yakabindie deposits in Western Australia for mining, enhancing the potential appeal to outside investors.

BHP is a top-tier nickel producer along with Norilsk of Russia (>> GMK Noril'skiy nikel' OAO), Brazil's Vale (>> Vale SA) and Glencore Xstrata (>> Glencore Xstrata PLC). Excluding its Cerro Matoso nickel business in Colombia, Nickel West's operations are located in Western Australia, where 8 million tonnes of contained metal are known to exist, a significant portion in large deposits high in talc.

Add to that a discovery the company made last year and dubbed "Venus', which geologists consider among the biggest in the world despite the paucity of information BHP has provided on the find.

TALC-BEARING ORE

High talc-bearing ores require hotter temperatures to melt, lifting smelting costs by 25 percent or more - a key consideration when nickel prices are low.

Studies into treating high talc ores through a filtering process in Australia date back to at least 2005, though it was 2011 before BHP allocated A$177 million (98 million pounds) to a talc redesign project. By 2012, BHP said it was processing high-talc ore that had been stockpiled awaiting a breakthrough.

Nickel markets are staging a comeback, with pricing up 20 percent since January 1. Driving demand is rising stainless steel production, which relies on nickel for shine and durability, and changes in Indonesia mining laws that has cut off a major supply source for Chinese steel makers.

Nickel West sits outside BHP's designated four "pillars of growth" - iron ore, copper, coal and petroleum products. Potash mining in Canada sits as a potential fifth pillar.

"By increasing our focus on these four pillars, with potash as a potential fifth, we will be able to more quickly improve the productivity and performance of our largest businesses," BHP said on April 1.

X2 Resources, an investment vehicle established by Mick Davis, the former chief executive of Xstrata until its merger with Glencore last year has been named by local media as a contender for Nickel West and other BHP businesses.

X2 Resources has up to $3.75 billion in finance and operates a mid-sized diversified mining and metals company. The backers comprise private-equity group TPG Capital and the commodities trader Noble Group (>> Noble Group Limited) and three unnamed sovereign wealth and pension fund investors.

Davis is no stranger to nickel, leading Xstrata into its 2006 acquisition of Falconbridge of Canada as well as takeovers of Australia's Murrin Murrin and Jubilee operations.

If BHP decided to sell businesses separately, smaller Australian nickel companies Sirius Resources (>> Sirius Resources N.L.) and Western Areas (>> Western Areas Ltd) could also be contenders to buy.

Sirius plans to start nickel production in 2017 at a rate of 28,000 tonnes a year. Western Areas already delivers nickel concentrate to BHP's Kalgoorlie smelter for processing.

(Editing by Ed Davies)

By James Regan


© Reuters 2014
Stocks mentioned in the article
ChangeLast1st jan.
BHP GROUP LIMITED 2.95% 41.2 Delayed Quote.-3.57%
EURO / BRAZILIAN REAL (EUR/BRL) 0.08% 5.5367 Delayed Quote.-12.46%
GLENCORE PLC 3.52% 462.2 Delayed Quote.19.02%
GOLD 0.26% 1836.09 Delayed Quote.-0.17%
NASDAQ COLOMBIA -1.05% 353.80812 Real-time Quote.-3.27%
PUBLIC JOINT STOCK COMPANY MINING AND METALLURGICAL COMPANY NORILSK NICKEL -0.87% 18934 End-of-day quote.-17.06%
SHELL PLC 1.41% 2118.5 Delayed Quote.28.72%
SILVER 1.48% 21.448 Delayed Quote.-9.36%
VALE S.A. 0.00%End-of-day quote.0.00%
VALE S.A. 2.78% 74.62 Delayed Quote.-4.28%
WARNER BROS. DISCOVERY, INC. 1.13% 14.28 Delayed Quote.-39.34%
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Sales 2022 66 796 M - -
Net income 2022 22 087 M - -
Net Debt 2022 4 193 M - -
P/E ratio 2022 6,16x
Yield 2022 12,2%
Capitalization 141 B 141 B -
EV / Sales 2022 2,17x
EV / Sales 2023 2,34x
Nbr of Employees 40 110
Free-Float 68,3%
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John Kenneth Norman MacKenzie Chairman
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