BHP Group unveiled the most sweeping change to its business since the world’s biggest miner was created two decades ago, as it plans an escape away from fossil fuels to shift toward what it calls “future facing” commodities and clears up some longstanding questions facing investors.
BHP will sell its oil and gas operations to Woodside Petroleum Ltd. in exchange for shares that it will distribute to its own investors, it announced Tuesday. The company also approved US$5.7 billion of spending to build a massive new fertilizer mine in Canada and said it will unify its dual-listed structure and shift to a single primary listing in Australia. The shares in London jumped as much as 9.8 per cent after the flurry of announcements.
Melbourne, Australia, on Tuesday, Feb. 18, 2020.
The decisions -- which come alongside record free-cash flow for the year through June and a US$10.1 billion final dividend -- represent a pivotal moment for Chief Executive Officer Mike Henry, who took the helm in January last year. Investors have been waiting years for a decision on Jansen, while the company has said previously its dual listing was up for discussion after coming under pressure from activist investor Elliott Management Corp., which also pushed for an exit from oil and gas.
Since his appointment, Henry has been seeking to focus the company toward metals and minerals that will benefit from global efforts to reduce emissions, electrify cities and feed a growing global population. A Canadian-born executive who joined BHP in 2003 from Mitsubishi Corp., he inherited a business that had been stripped down and simplified under his predecessor, who sold out of shale and spun off unwanted assets, but still faced huge decisions on potash, the listing and the future of fossil fuels.
“These are sweeping changes,” said Ben Davis, an analyst at Liberum Capital. “The new, improved, not so-boring BHP.” The change to the listing structure means “they can be more nimble in the future,” he said. “It’s not just change today, but it means there’s more change coming tomorrow.”
The dual listing dates back to 2001, following Australia-listed BHP’s merger with U.K.-listed Billiton, and had seen the companies managed and run as a single entity with shareholders having equal economic and voting rights. Elliott argued in 2018 that a reorganization into a single company in Australia would add more than US$22 billion in value to shareholders.
BHP generates the bulk of its profits from iron ore and copper -- a metal that’s central to the green-energy transition -- and benefited from soaring prices for both commodities over the past year. The company is also trying to sell its thermal coal operations and is expanding in nickel, a vital material in rechargeable batteries.
The commodities giant is getting out of oil and gas as the fossil-fuels industry grapples with global pressure from investors and governments over climate action, prompting some larger oil rivals to shrink their core production and add renewable energy assets. While BHP has said it expects demand to remain strong for at least another decade, the company wants to avoid getting stuck with assets that will become more difficult to sell.
BHP has also finally approved the first stage of construction of the Jansen potash mine in Saskatchewan, Canada, after years of wavering over the huge price tag. The operation, expected to start production in 2027, will make it one of the world’s top producers of the crop nutrient.
“Potash provides BHP with increased leverage to key global mega-trends, including rising population, changing diets, decarbonisation and improving environmental stewardship,” the company said.
It’s also the latest sign that the biggest miners are ready to open their wallets to invest in new mines after years of austerity. The industry has been focused on shareholder returns and debt reduction after being penalized by investors.
BHP has already spent about US$4.5 billion on Jansen and dug two 1,000-meter (3,300-feet) deep shafts but held off on a final development decision as it weighed the risks of the large investment. Potash prices have jumped this year amid strong demand, as well as worries about supply after Belarus, one of a handful of producing nations, was hit by sanctions.
Like its biggest rivals, BHP reported bumper profits and dividends. Commodity prices surged in the past year as governments around the world unleash trillions of dollars in stimulus packages to help the global economy emerge from the pandemic, boosting demand for raw materials.
BHP quits oil, piles into Canadian potash in overhaul for CEO Henry - BNN
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