BHP Billiton spin-off a bright spot in commodities gloom

(Repeats story first published late Monday; no change to text)

By Sonali Paul

MELBOURNE, Feb 23 (Reuters) - When global miner BHP Billiton (NYSE: BBL - news) reports its half-year results on Tuesday, the only parts of the company that are likely to report profit growth are some of the unloved assets it aims to spin off by June.

Commentators had dubbed the company BHP plans to hand to shareholders "DudCo" before it was christened South32, as the aluminium, manganese, nickel, some coal and silver businesses barely contributed to BHP's earnings.

But now those businesses are looking rosier as prices for aluminium and manganese are improving in a world where prices for BHP's four biggest products, iron ore, petroleum, copper and coal, have all collapsed to near six-year lows.

Despite the improvement, BHP wants to shed the smaller assets so it can focus on its four core commodities, and still believes that shareholders will gain more if South32 is freed to develop assets that were starved of capital amid an iron ore and coal boom.

The world's biggest miner is expected to report a 34 percent slide in half-year underlying attributable profit to $5.1 billion, but within that, Deutsche Bank (LSE: 0H7D.L - news) sees earnings from aluminium nearly tripling while manganese earnings are seen improving by around 45 percent.

"These divisions will get a bit more attention than usual given their importance in South32," said Brenton Saunders, an analyst at BT Investment Management.

Aluminium and manganese are expected to contribute $551 million, or just under 7 percent of BHP's first-half earnings before interest and tax (EBIT), Deutsche estimated, compared with about 2.5 percent a year earlier.

Analysts estimate the aluminium and manganese businesses will account for around 70 percent of the roughly $13 billion value of South32, which is expected to carry net debt of $1.5 billion.

Two analysts on average expect South32's EBIT to be around $1.06 billion in the year to June 2015, rising to $1.43 billion in two years, largely driven by alumina and aluminium.

They warn the company's South African energy coal business could be a drag.

NO U-TURN

Investors don't expect the board to back track on plans to release spin-off documents in March for a shareholder vote in May, despite the tough near-term outlook for BHP's core businesses.

"The assets are too small for BHP," said Andrew Corbett, global resources analyst for Perpetual Investments. "I'm in support of what they're doing."

In a sign of how desirable South32 already is, lenders are flocking to grab a slice of a $1.5 billion five-year syndicated loan BHP is lining up for the new company despite the loan being priced sharply, at less than 100 basis points over LIBOR, banking sources said.

"The loan has been well supported by banks," one of those sources said.

Barclays (LSE: BARC.L - news) , Bank of Tokyo-Mitsubishi UFJ and Westpac Banking Corp are coordinating the loan, which is expected to close when the demerger is complete.

Some sceptics still question the wisdom of giving up prized assets like the Cannington silver, lead and zinc mine, rather than selling them, at a time when BHP's core businesses are under pressure and it needs cashflow to underpin its dividends.

"We believe a demerger, as opposed to a cash sale, does not mitigate growing risk to BHP's A+ credit rating or cash dividend cover," JPMorgan (LSE: JPIU.L - news) said in a review of South32 on Feb. 3.

However, investors said the spin-off is expected to go ahead given BHP has a large base of retail shareholders, who are likely to follow the board's recommendation and will in any case benefit directly by getting a stake in South32.

"It's very likely to get approved by the market," said BT Investment Management's Saunders.

(Additional reporting by Sharon Klyne; Editing by Richard Pullin)