BHP Billiton Limited puts more assets on the chopping block

The divestments are set to continue through 2014 as the miner tries to free up more cash.

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It’s no secret that mining heavyweight BHP Billiton Limited (ASX: BHP) has been looking to offload its financially stressed nickel division.

Although it had not been officially confirmed until recently, the market only needed to look as far as the company’s earnings results to note just how much of a drag the division was having on the group’s overall earnings. Over the first half, the miner’s aluminium, nickel and manganese division returned just US$149 million (from assets worth US$8.6 billion). And if that wasn’t convincing enough, how about the impairment charges of almost US$1.6 billion on the assets spread over the last two years.

While it seemed like the miners could do no wrong over the decade-long mining boom, companies like BHP, Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) are now realising that they have to focus on long-term sustainability rather than simply spending without a second thought. Nickel, which was notably excluded from the CEO’s “four pillar” strategy, will not be part of the company’s long-term story.

However, it seems as though the sale of the nickel divisions will only be the beginning. Although iron ore remains BHP’s greatest generator of revenue, the miner’s president of iron ore Jimmy Wilson yesterday confirmed the company’s plans to sell its west African iron ore assets, stating: “We want to move out of our West Africa position.” Despite this, BHP is still anticipating 212 million tonnes per annum in 2014 in Pilbara iron ore production.

The announcements come at a time where each division within BHP must compete aggressively for funding as the miner focuses on reducing operating costs and spending on unnecessary projects whilst also improving productivity. The miner could also look at divesting from the lesser parts of its energy coal operations.

Foolish takeaway

The divestments of non-core assets will allow the miners to focus more heavily on their more profitable operations, while the sales will also free up cash which can be put towards paying down debts. BHP has indicated that a share buyback program could be on the cards when net debt falls below US$25 billion.

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

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