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BHP Billiton mulls mining float for non-core assets

Mining giant considering spinning off £19bn of non-core operations

The City was braced for what could be a huge new mining flotation as it emerged that BHP Billiton is considering splitting off $19 billion of non-core operation mines and turning them into a separately quoted company.

Along with the other big miners, BHP massively over-expanded and over-invested in its mining projects when prices of commodities were rising, only to find itself left with a vast range of overvalued mines on its books.

While it has already sold $6.5 billion (£3.9 billion) of mining assets in the past two years, a far bolder plan is reportedly being discussed with the company’s adviser, Goldman Sachs.

Codenamed “Project River”, the Goldman-led team, who would make millions of dollars from a sale, is considering spinning off BHP’s aluminium, nickel and bauxite assets in a demerger to create a new $19 billion company that could be listed separately on the London Stock Exchange, as well as the Australian and South African markets.

BHP pointedly did not deny the reports in an announcement to the stock market today, leading analysts to give credence to them, although the company is also considering a mere continuation of its programme to sell its non-core operations on a mine-by-mine basis.

Mick Davis, who helped create the giant BHP Billiton before starting Xstrata, was being touted as a likely bidder for any assets that BHP chief executive Andrew Mackenzie may want to offload. Davis said yesterday that he had $2.5 billion to invest in buying such projects if the price was low enough.

If BHP opts for the demerger route, it will enable investors to share in any future rise in the value of the mines as the global economy recovers.

However, investment bankers said the appetite for mining investments among fund managers is still extremely weak given the billions of dollars that investors have lost in the sector over recent years.

That could make outright asset sales more attractive than continued ownership of two giant companies, albeit split “good mine-bad mine”.

“We continue to actively study the next phase of simplification, including structural options, but will only pursue options that maximise value for BHP Billiton shareholders,” the group said.

Shares in BHP jumped 3 per cent to 1892.6p in London.