If you've been a shareholder of mining heavyweight BHP Billiton Limited (ASX: BHP) over the last few years, you have every right to be disappointed or even angry with the stock's performance.
Shares dropped as low as $30.43 last year from a high of nearly $50 on the back of rising concerns regarding the future growth prospects of emerging markets such as China and deteriorating commodity prices. While shares have since recovered to $37.70, they are still sitting 25% below the level many investors decided to buy. In contrast, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has risen 11% (not including dividends) and looks set to climb higher following a stellar February earnings season.
To make matters even worse, profit was quickly deteriorating thanks to poor cost-management and unnecessary spending. Speaking to Nine Network's Financial Review Sunday program, Evy Hambro, BlackRock's managing director of natural investments, expressed his dissatisfaction regarding some of the company's merger and acquisition activity since 2007, which he believes has been "generally value destructive for the resources sector".
His company has perhaps more right than any other investor to be infuriated by the stock's relative performance, given that BlackRock is the largest shareholder of BHP and the second-largest of Rio Tinto Limited (ASX: RIO).
Turning tides
Given the stock's poor recent performance, the company has been under significant pressure from shareholders to improve returns. While it has indicated that it will undertake a share buyback program once its net debt falls below US$25 billion (which could happen as soon as August), investors were treated to even better news that the company was in discussions to demerge roughly $20 billion of non-core assets.
The units to be divested, which would include aluminium, nickel and bauxite assets, would be spun-off into a separate listed entity to be owned by BHP's current shareholders. While shareholders would likely receive shares in the new company, it would allow the management teams of both entities to focus on drawing the most value out of their own divisions. For instance, BHP Billiton itself would be able to extract the most value from its "four pillars", namely iron ore, copper, petroleum and coal (as well as potash – a likely fifth pillar), while the performances of its non-core assets could also be improved.
Shares have increased by more than 3.5% since the announcement was made on Tuesday last week.
Foolish takeaway
Given it maintains far more diversified operations than others in the mining sector, such as Rio Tinto, Fortescue Metals Group Limited (ASX: FMG) or Arrium Limited (ASX: ARI), BHP is a safer and more attractive investment prospect.
