Don't fret about BHP 'demerger'

The word "divestment" has been much bandied around since BHP Billiton confirmed last week that it would spin off its South African manganese, coal and aluminium assets into a new company.

But "divestment" is a politically charged word and not the right term for what BHP Billiton is doing.

The same word was used by pundits, politicians and plebs to refer to Anglo American and Old Mutual moving their primary listings to London more than a decade ago. When Anglo American Platinum recently announced that it wanted to sell some of its less profitable mines the word popped up again.

One reason for the word being problematic is its history. The divestment campaign against South Africa in the 1960s, 1970s and 1980s was intended to get foreign companies to move their capital out of this country. The belief was that apartheid was shocking and that Western companies should not do business, no matter how lucrative, in such a place.

Some people now try to suggest that we are now seeing the same thing and that the world's biggest mining company does not like the politics here and will not continue to do business in South Africa.

But that's a stretch.

It would be more accurate to say that mining - and investing in mining - have changed.

BHP Billiton prefers the word "demerger" to describe its plans. It wants to focus on the biggest money-spinners: iron ore, coking coal, copper, petroleum and maybe even potash later.

CEO Andrew Mackenzie promised that the demerger would create 200 jobs in South Africa because the new company, for now known as NewCo, would maintain a regional office here, probably with some management and back office functions.

But the move would mean that the world's biggest mining company would have little left in South Africa.

Is that a bad thing?

Not really.

The mines are not being moved. The smelters are not being uprooted. At least, that's what the company says.

For more than a decade there has been a consolidation in the mining industry that has created - and bloated - the diversified giants we have today. BHP Billiton is the biggest of them; Rio Tinto, Vale, Glencore Xstrata and Anglo American are the others.

But keeping everything under one umbrella is not necessarily the best strategy.

Investors want to know what they are investing in. And the fewer commodities there are in the mix, or the better they fit together, the easier it is to value a company.

When you purchase shares in NewCo, you are buying South African manganese, some South African coal and some South African aluminium - but also Colombian nickel and silver, and zinc and lead from Australia. It's quite a cocktail.