BHP’s alumina-aluminium, nickel and manganese operations could be in for a change.BHP Billiton’s announcement that it is now actively considering a demerger of ”a selection” of its smaller resources suggests that one way or another BHP’s alumina-aluminium, nickel and manganese operations will go.

BHP is not saying that they will all be placed out to its shareholders in a demerger, however. If it does choose the demerger path, it will want to create a new vehicle for its shareholders that makes sense as a business, and has strong prospects. Weaker assets or ones that are not a good fit might be dealt with separately.

BHP’s board will meet next Tuesday to sign off on the group’s June 30-year profit result. It is likely to announce its demerger plan at that time, and reveal what assets will be included.

BHP would tighten its focus on its biggest and most competitive operations – iron ore, copper, coal and petroleum. Uniquely in the resources sector, petroleum profits would continue to smooth out the mining commodity price cycle, and BHP would have its potash play in Canada in the wings as a potential fifth pillar.

Shareholders would get ownership of a separately listed new company that owned the smaller assets BHP hived off. It would be separately run and separately financed: similar spinoffs in the past have prospered.

Orica announced a week ago that it had decided to spin off its chemicals business, and said a demerger was its preferred option. Orica also said that its chemicals business could be sold, however, and it is known to have been contacted by potential buyers. It may run a dual process that develops the demerger, but also leaves the way open for other companies to bid for the assets.

BHP, on the other hand, said only that a demerger is its preferred course, and that it will meet again next week. The demerger is the default, and there’s next to no time for alternatives to emerge.


Bank shares are priced for financial alchemy these days. They need to keep delivering positive surprises to turn leaden loan growth into earnings and share price gold. If they don’t, sellers emerge.

CBA’s profit result was solid on Wednesday, but its shares fell almost 1 per cent on the day. On Friday, ANZ’s third-quarter report revealed slightly softer revenue than expected but better cost control and the same profit guidance. Its shares also fell by almost 1 per cent.

The banks are operating in markets that are patchy and difficult to read. After slumping to a two-year low of 92.9 points soon after Joe Hockey’s budget in May, the Westpac-Melbourne Institute index of consumer sentiment has rebounded, but at 98.5 points is still well below a high of 110.6 points reached last September after the Coalition’s election win, for example.

NAB’s business survey for July portrayed a more confident business mood. Business confidence rose from plus eight points to plus 11 points, only one point short of the confidence business bosses were displaying after the September election (confidence and pessimism are in balance when the index is zero).

Business conditions were also strong in in July, according to the survey, rising from plus two points to plus eight points. Trading conditions rose from plus seven to plus 14, and business profitability rose from plus three to plus 10.

The strength was mainly in two sectors, construction and retail, but a survey as strong as the NAB was in July would in the past have quickly led to lengthening queues for business loans.

Business loan demand and personal  loan demand continue to be missing links for the banks, however.

A 5.1 per cent rise in credit in the year to June 30 was driven by a 6.4 per cent rise in housing credit. As ANZ noted on Friday, business loan demand has been also rising, but it’s off a low base. Business credit rose by only 3.5 per cent in the year to June. Personal credit growth was even worse: 0.7 per cent.

Wage growth is low, unemployment is still above 6 per cent and the banks all report similar conditions at street level. Consumers aren’t running scared, but they are spending carefully, on services mainly. They are also still keen to build their savings.

Business sales and earnings are OK, and better than OK in some sectors, including recreational services and construction. Bosses are, however, still intent on reducing their debt exposure. The banks as a result are all working overtime to stop their business loan books shrinking.

The street level feedback and NAB’s business survey appear to be in conflict, but they are not. Business people feel reasonably secure in their outlook. They just don’t want to hire, and they don’t want to borrow. It is the new normal, and it might last for years.

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