Gencor to raise $1bn through Billiton split

Magnus Grimond

Gencor, the South African mining giant, yesterday announced plans to spin off its non-precious metals interests in a $7bn group centred on the Billiton operations acquired from Shell two years ago for $1.2bn. The group, which plans to raise at least $1bn in an international share placing next month, will have its headquarters in London and qualify for entry to the FTSE 100 index as one of the UK's top 50 companies.

However, the current group's 27 per cent stake in the platinum interests controlled by Lonrho, the London-based mining and trading combine, will be retained by the rump of Gencor, which will remain based in South Africa.

Billiton, which will have 65 per cent of its assets in South Africa, will be one of the world's largest producers of aluminium, the leading producer of ferrochrome and the biggest exporter of steam coal. The new group is also expected to become the world's fourth-biggest producer of nickel following a deal announced yesterday by Gencor to merge its nickel interests with the Australian group QNI to form a new group capitalised at around $1.7bn.

Brian Gilbertson, who will stay on as Gencor's chairman temporarily, will become chairman and chief executive of the new group. He will be joined by Mick Davis, who will move from being Gencor's finance director to an executive director at Billiton. Yesterday he said the decision to split had been in gestation for two years: "We had planned an internationalisation of the group and it became clear if we were going to compete with the majors we had to have access to the international capital markets."

The $1bn or more being raised was around three to four times what Billiton could have raised in South Africa, he said.

The authorities had effectively lifted the country's tight exchange control regulations for the demerger, which has been cleared by the central bank, the South African Reserve Bank.

The group had some $3bn of potential projects at varying stages of realisation to spend the new money on.

These include the expansion of the Worsley alumina refinery in Western Australia and the Mozal aluminium smelter in Mozambique, both of which are expected to proceed later this year.

There were also "exciting opportunities for a mining company" in privatised ventures in South America, Mr Davis said.

Pro forma profits for the new group, which will start off with minimal gearing, would have been $698m in the nine months to March, compared with $921m for the previous 12 months.