JOHANNESBURG (miningweekly.com) – Good overall third-quarter production performance by BHP Billiton hid the weaker performance of most of the assets that make up South32, Investec Securities mining analyst Hunter Hillcoat says.

BHP Billiton intends simplifying its portfolio by demerging the South32 metals and mining company, which the Investec analysts averred would almost certainly have seen a negative market reaction had it already been spun out.

“This weakness was hidden by the overall good performance of BHP,” Hillcoat noted in pointing out that only two of the ten commodity groups in the potential South32 portfolio – Becsa coal in South Africa and Cerro Matoso nickel in Colombia – delivered a better performance in the three months to March 31 than they did in the preceding quarter.

Cerro Matoso has since been operating at less than full capacity as a result of an “illegal union blockade” over changes to work rosters within some business units, Bloomberg news service has reported.

Analysts have noted that South32 will be more diversified than BHP Billiton, which will be stripped back to its four key commodities of iron-ore, petroleum, copper and coal, with a possible fifth pillar in potash.

South32 CE-designate Graham Kerr hosted a dinner on Monday that kicked off a four-day roadshow of its key Australian assets.

Roughly a third of South32’s assets are in South Africa, made up of aluminium and manganese in addition to coal.

The rationale behind spinning out the South32 assets is that they will be worked harder by focussed management and, therefore, deliver better earnings and receive greater value recognition.

However, Investec contends that the assets currently benefit from the higher multiples at which BHP Billiton trades relative to its peer group and that the pressure will be on Kerr and his team to turn the operations around quickly to avoid a lower South32 valuation playing into the hands of an acquirer.

Big BHP Billiton investors are reportedly supporting the demerger ahead of next week's vote on the spin-off, but will wait and see the price at which the new stock trades before deciding whether to add to their stakes or to sell down.

Existing BHP Billiton shareholders will receive one South32 share for every BHP Billiton share they own with the demerger needing 50% support, which many observers believe is likely to be exceeded.

The broad view is that South32’s shares will trade down on listing and that BHP Billiton’s share price future will depend largely on how the iron-ore and oil prices perform.

Meanwhile, BHP Billiton is currently under pressure from the Australian tax authorities over its use of Singapore as a marketing hub for its products.

The Australian tax authorities are demanding an additional A$522-million from the world’s biggest mining company, which has paid a negligible $121 000 in tax in Singapore since 2006 on profits of $5.7-billion in the Asian country.

It is one of a number of global companies that have had their tax affairs scrutinised in Australia, which relies on corporate tax for nearly 20% of its revenue, representing more than twice the average in Organisation for Economic Cooperation and Development countries.

BHP Billiton is Australia’s largest taxpayer at $8.7-billion all told last year.

BHP Billiton revealed that it paid negligible tax in Singapore because of “its contributions to the development of Singapore’s commodities sector” and unlike Glencore, which has closed its coal hub in Singapore, is keeping the hub open despite the controversy.

Global media have reported that part of the dispute between BHP Billiton and Australia’s tax office relates to the prices at which its producing subsidiaries in Australia sell to the Singapore arm.

The Sydney Morning Herald has reported that BHP Billiton is paying 0.002% - effectively zero - on the hundreds of billions of dollars in sales of Australian resources it directs through its Singapore offices and BHP Billiton executives refused to answer questions when they appeared at recent public hearings.

But it turns out that the company paid a paltry $15 000 a year and the Senate inquiry has heard how mining companies have been selling commodities mined in Australia back to themselves in Singapore before marking up the price for sale into China and other global markets, escaping Australia’s 30% corporate tax rate.

Mining company Rio Tinto has told the committee that between 2008 and 2014 it made $4.5-billion in Singapore and paid only 5% in tax.

Statements by the mining companies have elicited sharp responses from independent Senate committee member Nick Xenophon, who said a "pensioner with a part-time job" paid more tax than BHP Billiton did through its Singapore deal and Greens leader Christine Milne urged the Abbott government to deal with tax avoidance in this year’s Budget.

Tax commissioner Chris Jordan has criticised BHP Billiton, Rio Tinto and other multinationals for providing selective evidence to the committee on their effective tax rates.

WAToday has reported that BHP Billiton is being tax audited under transfer pricing rules from 2009 to 2013 and under controlled foreign company rules from 2011 and 2014.