Yesterday, we highlighted how based on the chart below and CEO Mackenzie’s focus on ROIC going forward rather than size would lead to a demerger of the Billiton acquisition.
This morning BHP announced it is creating a new company that will house the aluminum and manganese business, which have some of the lowest EBIT margins as well as a nickel mine in Columbia, Silver/lead/zinc mine in Australia and certain thermal and coking coal operations. Management highlighted In a single step, we will significantly increase focus on the exceptionally large resource basins that underpin its competitive advantage.”
We believe the new post demerger BHP would have EBIT margins above 40%, and given the ability of management to focus on the 4 core pillars (iron ore, petroleum, copper, coal) you would expect further productivity improvements, higher FCF and more capital returns and higher dividends going forward.
