BHP Billiton, the world’s largest mining company, has hinted that it could spin off its non-core aluminium, thermal coal, manganese and nickel assets as part of a plan to simplify its portfolio.

“We believe that a portfolio focused on our major iron ore, copper, coal and petroleum assets would retain the benefits of diversification, generate stronger growth in free cash flow and a superior return on investment,” the company said in a statement made in response to market speculation.

“By increasing our focus on these four pillars, with potash as a potential fifth, we will be able to more quickly improve the productivity and performance of our largest businesses.”

Aluminium, manganese, nickel and coal (including metallurgical coal) accounted for a little more than 25% of BHP’s revenue in the six months to end December, but contributed only about 5% to underlying EBIT.

The Australian Financial Review said last week that BHP was considering a $20 billion demerger and that a team advised by investment bank Goldman Sachs was examining a number of strategic options for underperforming assets. BHP has previously said that the simplification of its portfolio is a priority.

The Australian newspaper said individual asset sales to trade buyers, or the emerging and well-funded private equity funds, such as the X2 fund headed by former BHP and Xstrata executive Mick Davis, remained the most likely outcome.

Last week X2 announced that it had secured as much as US$3.75 billion of equity funding from five investors that will be used to finance the creation of a new mid-tier diversified mining and metals group.

The Sydney Morning Herald has since reported that BHP has secured key tax exemptions for a potential $20 billion demerger of non-core assets while pushing forward discussions with governments in moves that suggest the resources giant is leaning towards approving the transaction. Sources close to the process said BHP had secured exemptions from the Australian Tax Office for capital gains, dividend and stamp duty issues that could have derailed the demerger option.

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