Demerged BHP may not hold on to coal assets for long: analysts

Analysts are questioning BHP Billiton’s (ASX, NYSE:BHP) (LON:BLT) commitment to coal, one of its confirmed “four pillars,” as they claim the mining giant may not be able to defend those assets for long after it includes them in the upcoming demerged entity announced last month.

‘‘Over the long term it is structurally very difficult to defend [the coal] assets as being ‘tier one’ and part of BHP’s long-term future,’’ Pengana Capital fund manager Tim Schroeders told The Sydney Morning Herald.

The firm, which has pursued a strategy of rightsizing and simplifying its business for over a decade, confirmed rumours last Friday, saying the board had chosen as a “preferred option” to demerge BHP’s unwanted assets, worth as much as $12 billion, as a separate company.

The new company, which is expected to contain BHP’s struggling aluminum division, as well as its manganese and nickel businesses across Australia, South Africa and Colombia, may also comprise the Cannington lead and silver mine, as well as the South African coal division.

Unit at gunpoint?

BHP, which is the world’s No. 1 seaborne coking coal producer, has previously defended the coal division on the grounds that the commodity is expected to remain the main source of affordable energy for the fastest-growing Asian economies. It has also argued its Queensland assets are considered among the best quality coking coal in the world.

But the division contributed just $746 million of the $21.12 billion earnings before interest and tax that BHP reported for the 2013 financial year.

“Any course of action remains subject to detailed review and an assessment of alternatives,” CEO Andrew Mackenzie said in April in response to increasing speculation on the future of the firm’s coal assets.

As part of the circulating rumours, it is said that Mick Davis’ new company would be quite keen on bidding for any assets that Mackenzie may want to offload, especially after the former Xstrata boss announced early this year he had $3.75 billion to invest in buying reasonably priced projects.