Wednesday, January 19

BHP agrees to exit oil business and approves new giant potash mine


BHP Group will merge its oil and gas operations with Woodside Petroleum as the largest miner positions itself for a global shift away from fossil fuels and prepares to invest $ 5.7 billion in a massive new fertilizer mine in Canada.

After the deal, BHP shareholders will own about 48% of Woodside, the miner said in a statement Tuesday. The company also announced that it will eradicate its dual listing structure and move to a single primary listing in Australia.

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CEO Mike Henry, who took office in January last year, is turning to what BHP calls “future-oriented” commodities: metals and minerals vital to global efforts to cut emissions, electrify cities and feed a growing world population. Tuesday’s announcements also help clear up a number of questions for investors, who have been waiting years for a decision on Jansen, while the company has previously said its double listing was under discussion.

BHP generates most of its profits from iron ore and copper, a metal that is critical to the transition to green energy, and benefited from rising prices for both raw materials over the past year. The company reported record free cash flow for the year through June and announced Tuesday that it will pay a final dividend of $ 10.1 billion.

The commodities giant is exiting oil and gas as the fossil fuel industry grapples with global pressure from investors and governments for climate action, leading some larger oil rivals to scale back. its 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 be harder to sell.

BHP also finally approved the first-stage construction of the Jansen potash mine in Saskatchewan, Canada, after years of hesitating over the huge price tag. The operation, expected to start production in 2027, will make it one of the world’s leading producers of the crop nutrient.

“Potash provides BHP with increased leverage for key global megatrends, including increasing populations, changing diets, decarbonization, and improving environmental stewardship,” the company said.

It is 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 focused on shareholder profitability and debt reduction after being penalized by investors for overspending. Smaller rival Rio Tinto Group announced last month that it plans to spend $ 2.4 billion on building a lithium mine in Serbia as it also seeks to expand into battery metals.

BHP has already spent about $ 4.5 billion on Jansen and dug two 1,000-meter (3,300-foot) deep wells, but has refrained from making a final development decision as it weighed the risks of the large investment. Potash prices have soared this year amid strong demand and supply concerns after Belarus, one of the few producing nations, was hit by sanctions.

Jansen’s approval follows BHP’s announcement last month that it has agreed to buy a nickel mine developer in Canada. It is also expanding existing nickel operations in Australia and building a stake in a copper company in Ecuador.

Like its biggest rivals, BHP reported extraordinary profits and dividends. Commodity prices spiked last year as governments around the world released trillions of dollars in stimulus packages to help the global economy emerge from the pandemic, boosting demand for raw materials.

The double listing dates back to 2001, following the merger of BHP, which is listed in Australia, with Billiton, which is listed in the United Kingdom, and had seen the companies managed and managed as a single entity with shareholders who had the same economic rights and voting.

The structure had previously come under pressure from activist investor Elliott Management Corp., which argued in 2018 that a reorganization into a single company in Australia would add more than $ 22 billion in shareholder value.

Underlying earnings increased 88% to $ 17.08 billion for the year.

© 2021 Bloomberg


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