BHP to continue divesting non-core assets

Although it has stated that it will take a more “patient and disciplined” approach to any transactions in the future, mining heavyweight BHP Billiton (ASX: BHP) has said it will continue to examine potential asset sales that would see it add to the US$7 billion ($7.5 billion) worth of already divested assets.

Like other miners in the industry, including Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG), BHP has been under significant pressure from investors to increase shareholder returns and strengthen its balance sheet in light of falling commodity prices.

Although the price of commodities such as iron ore have remained significantly stronger than many analysts had anticipated, it is likely that they will fall in the long run as supply begins to outweigh demand.

Speaking at its AGM in Perth yesterday, BHP’s chairman, Jac Nasser, promised that the company’s portfolio would continue to be simplified over time as it aims to focus on its core operations, but that there also “has to be a firm focus on value”.

Already, some of the miner’s more recent asset sales have resulted in better than anticipated proceeds. For instance, BHP received US$650 million for its Pinto Valley copper mining operation in Arizona as well as US$1.6 billion for its stake in the Western Australian Browse project, which was led by Woodside Petroleum (ASX: WPL).


Nasser also delivered a fairly positive outlook for the mining sector, stating that he believes China will grow by around 7% next year and that demand for commodities will remain high. Over the next 15 years, this could result in a 75% increase in demand for certain commodities, which would be fantastic for BHP given that the nation accounts for 30% of the miner’s exports.

He said, “Only a few countries in the world are well placed to supply this increased demand for commodities, and Australia is one of them.”

On a separate note, Ian Dunlop’s attempt to be elected to the miner’s board was defeated easily with the former chairman of the Australian Coal Association receiving just 3.5% of the proxies.

Foolish takeaway

Shares in the miners have risen substantially in recent months as confidence returns to the sector. However, the future remains unclear and given the risks facing the sector, investors may be better off looking for alternative investment ideas.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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