Mining giant BHP Billiton Tuesday rejected an activist hedge fund proposal that it restructure the business and spin off its US petroleum arm, saying the costs and risks outweighed any benefits.

New York-based Elliott Advisors, a significant shareholder in the Anglo-Australian company, argued in a letter to directors and the media that its plan could unlock as much as 50 percent more value in the stock.

It proposed merging the British and Australian entities into a single Australian-headquartered and Australian tax resident listed company.

Elliott, run by billionaire Paul Singer, also urged BHP to demerge its petroleum business into a separate entity listed on the New York Stock Exchange and return more cash to shareholders through buy-backs.

"We have had dialogue with Elliott over many months, consistent with our commitment to shareholder engagement," the world's biggest miner said in a statement.

"After reviewing the elements of Elliott's proposal, we have concluded that the costs and associated risks of Elliott's proposal would significantly outweigh any potential benefits."

BHP said it was constantly reviewing its dual-listed structure, which came about under terms of the 2001 merger of BHP Ltd and Billiton Plc that created the current mining group.

But it said it has so far failed to identify "sufficient benefits" to warrant any changes. It also argued that there was no obvious advantage to spinning off its petroleum business.

"Since the formation of the dual-listed company in 2001, we have returned to shareholders approximately US$23 billion in buy-backs ... and approximately US$56 billion in cash dividends," it added.

News of the Elliott proposal boosted BHP's Australian-listed shares late on Monday, but they retreated 1.87 percent to Aus$25.25 in morning trading on Tuesday.

BHP slumped to an annual net loss of US$6.39 billion, its worst-ever result, in the 2015-2016 financial year due to sliding oil and iron ore prices.

But it bounced back into the black in the last six months of 2016 as commodity prices rebounded.