BHP flags $US738m demerger costs

BHP Billiton expects to incur one-off costs of around $US738 million on its $US15 billion ($A18.5bn) spin-off of non-core aluminium and manganese assets into South32, but has flagged further reductions to its cost base following the transaction.

Investors responded well to the news. By 4.15pm (AEDT) BHP shares were 1.26 per cent higher at $29.77, against a benchmark index lift of 0.77 per cent.

The charge comprises of stamp duty and cash tax of $US339m, South32 set up and separation costs of $US254m and execution costs of $US145m, including financial advisor costs of $US30m.

BHP chief executive Andrew Mackenzie said the demerger of non-core aluminium and manganese businesses will materially simplify the miner's portfolio in a single step and, in the longer term, "allow [BHP] to further focus on delivering gains beyond the $US4 billion per annum by the end of the 2017 financial year already targeted."

The miner expects functional pre-tax cost savings of around $US100m per annum following the streamlining of operations resulting from the demerger.

BHP reiterated it will not rebase its own dividend as a result of the demerger, while South32 is targeting a return of at least 40 per cent of underlying earnings to shareholders in the form of dividends.

The mining giant's board urged shareholders to vote in favour of the demerger at special meetings to be held in Perth and London on May 6.

For the proposed demerger to proceed, a resolution must be approved by BHP Billiton shareholders of both the ASX and London-listed entities, voting on a joint electorate basis.

BHP also revealed it had commissioned independent expert Grant Samuel, to assess the demerger. The review concluded that the benefits clearly outweigh the disadvantages and BHP Billiton shareholders are likely to be better off if the demerger proceeds.

Eligible shareholders will receive one South32 share for every BHP Billiton share.

"The demerger will simplify BHP Billiton and has the potential to unlock shareholder value, while creating a new global diversified metals and mining company with a significant industry presence in each of its major commodities," BHP Billiton chairman Jac Nasser said.

South32 is set to house BHP Billiton's non-core aluminium and manganese businesses and the Cerro Matoso Nickel, Energy Coal South Africa, Illawarra Metallurgical Coal and Cannington Silver-Lead-Zinc mines -- most of which were acquired when BHP took over the UK's Billiton in 2001. The new entity's gross assets total $US26.723m.