11/7/2014 Miner BHP Spurns Bigger Is Better Mantra - WSJ - WSJ This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com. http://online.wsj.com/articles/miner-bhp-spuns-bigger-is-better-mantra-1414796008 EUROPEAN BUSINESS NEWS CEO Mackenzie Is About to Realize His Goal for a More Focused Company BHP CEO Andrew Mackenzie is spinning off unwanted assets to investors to achieve a more focused business. BLOOMBERG NEWS By ALEXIS FLYNN and ANDREW PEAPLE Oct. 31, 2014 6:53 p.m. ET LONDON BHP Billiton is the world's largest mining company by market value, with operations in 25 countries. So what's one of the first things its chief executive advised his board when he joined six years ago? Break it up. http://online.wsj.com/articles/miner-bhp-spuns-bigger-is-better-mantra-1414796008?mod=djem_jiewr_MG_domainid 1/4 11/7/2014 Miner BHP Spurns Bigger Is Better Mantra - WSJ - WSJ Now Andrew Mackenzie is about to get his way. The Anglo-Australian miner disclosed plans this summer to spin off unwanted assets in areas such as aluminum and manganese to shareholders. The business could be valued $18 billion as a stand-alone operation, analysts say. Mr. Mackenzie said the spinoff, expected to be completed next year, shows that BHP isn't about getting bigger. Once a company decides to focus on large assets, \"there is a lot of simplification,\" the 57-year-old said in an interview. The slimmed down BHP will pursue four main areas: coal, copper, iron ore and oil and gas. It also may expand into potash, a mineral mainly used as fertilizer. Mr. Mackenzie, a former academic and energy executive, plans to focus the remaining company's efforts on just 12 major assets world-wide, down from 30 before the split. The breakup is something more companiesespecially in natural resourcesare doing to hone their business and make earnings more predictable. U.S. oil company ConocoPhillips split up three years ago, leaving one company focused on exploration and production and another on refining and selling fuel products. \"Complexity is compounded when you have too many products, when you have too many things and you have multiple cultures in your organization,\" Mr. Mackenzie said. In contrast, predecessor Marius Kloppers attempted two huge deals during his six-year tenure, with fellow Anglo-Australian miner Rio Tinto and Canada's Potash Corp. of Saskatchewan. A slimmer BHP isn't universally loved. Its shares fell 4.9% in London on Aug. 19, the day the split was announced. They fell slightly on Friday, down 14% for the year. \"The main beneficiary of the proposed demerger would appear to be the multitude of advisers that will no doubt require significant compensation for helping structure the deal,\" said Paul Gait, a mining analyst at researcher Sanford C. Bernstein. Mr. Mackenzie's approach also contrasts with that of mining rival Glencore PLC, which recently approached Rio Tinto about a potential $160 billion merger. Rio Tinto rejected the approach. For BHP, such big deals are \"effectively off the agenda\" Mr. Mackenzie said. \"To some extent the Glencore-Rio idea is a counterpoint to us,\" he said. \"We'll see who's right, I guess.\" http://online.wsj.com/articles/miner-bhp-spuns-bigger-is-better-mantra-1414796008?mod=djem_jiewr_MG_domainid 2/4 11/7/2014 Miner BHP Spurns Bigger Is Better Mantra - WSJ - WSJ As BHP slims down, it also is turning more to oil and gas. Mr. Mackenzie, a former BP PLC executive whose doctoral thesis is still used by geologists looking for oil, said BHP has the skills to compete with top energy companies. BHP is one of the biggest investors in U.S. shale, operates oil rigs in the deep waters of the Gulf of Mexico and holds large exploration blocks near Trinidad and Tobago. \"In shale, in offshore oil and gas, in those areas we're as big as a major, we're as technically able, and in some cases better,\" he said. The company could use expertise gained in mining when drilling for hydrocarbons, he said. \"There are more synergies between copper, potash, coal, iron ore and the upstream oil and gas portfolio that we've chosen than there is between offshore oil and gas and refining or petrochemicals, or corner shops that sell chocolate bars with petrol,\" said Mr. Mackenzie. BHP has had troubles with shale assets. The company recently put acreage in the Fayetteville Shale area of Arkansas on the block. Two years earlier, low natural gas prices forced the company to write down $2.84 billion of the nearly $5 billion it paid Chesapeake Energy Corp. for the property. And Mr. Mackenzie has attracted criticism for not returning more money to investors through share buybacks. Some investors had expected the spinoff would be accompanied by a large cash return. But he insisted that the company must have a strong balance sheet, with commodity prices so volatile. \"Only when we have excess cash do we get into the debate you're talking about, and we should signal that more strongly,\" he said. With mineral prices generally under pressure, BHP cut its capital spending by a third for the fiscal year that ended in June, to just over $15 billion. The company expects that spending will be lower this year. BHP still has big assets it could develop further, such as its Olympic Dam copper and uranium project in Australia or its Jansen potash project in Canada. But Mr. Mackenzie said there were unlikely to be announcements of \"megainvestments\" as the company would prefer to stick to small, incremental spending on projects. http://online.wsj.com/articles/miner-bhp-spuns-bigger-is-better-mantra-1414796008?mod=djem_jiewr_MG_domainid 3/4 11/7/2014 Miner BHP Spurns Bigger Is Better Mantra - WSJ - WSJ The slimmed down BHP will pursue four main areasiron ore, oil and gas, copper and coal. Above, one of the company's coal mines in Australia. RHIANNON HOYLE/THE WALL STREET JOURNAL Write to Alexis Flynn at alexis.flynn@wsj.com and Andrew Peaple at andrew.peaple@wsj.com Copyright 2014 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. 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