BHP sells US copper assets

Resource companies selling off non-core operations

Mining giant BHP Billiton (ASX: BHP) has today announced that it will receive cash of US$650 million after selling its Pinto Valley mining operation and the associated San Manuel Railroad Company.

BHP announced that Capstone Mining Corp is buying the open-pit copper mine and its related 47km railway that runs from San Manuel to Hayden, Arizona, taking the transaction value of BHP’s divested assets announced over the past twelve months to more than US$5 billion.

The sale, which is still subject to regulatory approval, is expected to be completed in the second half of this year.

Miners globally have been looking to slim down, cut costs and sell off non-core assets, in the face of slumping commodities prices and expectations of further falls, as China’s growth slows. China is the main consumer of a large portion of the world’s commodities, but is moving to a consumer driven society, away from an emerging, infrastructure building economy, which was heavily reliant on raw materials.

BHP’s rival, Rio Tinto Limited (ASX: RIO) has also announced plans to cut back on expenditure, with new CEO Sam Walsh reporting that costs are expected to fall by US$2 billion in 2013 and an additional US$3 billion by the end of 2014. Analysts have estimated the big two, Rio and BHP could realise $28 billion from asset sales.

Fellow iron ore miner, Fortescue Metals Group (ASX: FMG) is reported to be looking at selling off a part sale of its rail and port infrastructure, aiming to garner over $3 billion, to fund its planned capital expenditure program and reduce its debt levels.

Shareholders will be hoping that funds from the asset sales will find their way into higher dividends, as miners come under pressure to improve returns to shareholders. All three miners have seen their share prices fall over the past 12 months, despite the S&P / ASX 200 Index (Index: ^AXJO) (ASX: XJO) rising close to 19%.

Foolish takeaway

Miners are heavily reliant on commodity prices, something they have very little control over, with price falls having a dramatic effect on cash flows and profits. The one thing they can control is their operating costs, so investors can expect more asset sales and cutbacks in staff and exploration expenses.

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