Tuesday, January 18

BHP recovers with record dividends as company says goodbye to London

BHP shares rose 7.4% Tuesday following the announcement of an 88% jump in underlying earnings to $ 17.1 billion and a 151% jump in dividends per share to $ 3.01.

The jump in share price appears to be a response to strong financial results, as well as news that the group would switch its main listing from London to Sydney and merge its oil business with Woodside to create a top 10. independent energy companies of the world, effectively. signaling BHP’s exit from oil and gas to cleaner products.


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Read: BHP closes in on oil and gas exit as climate scrutiny intensifies

In what was hailed as the company’s most radical announcement list in nearly a decade, BHP also announced a $ 5.7 billion investment in the Jansen potash mine in Saskatchewan, Canada.

The decision was influenced by rising potash prices, driven by demand from the agricultural sector. Potash prices have risen between 150% and 180% over the last year, depending on the grade, a trend that is likely to benefit in the future from megatrends such as increasing populations, changing diets and intensifying food production. farming.

BHP and Woodside plan to merge their respective oil and gas portfolios, subject to due diligence, and if successful, the expanded group would be owned 52% and 48% by existing Woodside and BHP shareholders, and would continue to be listed on the Australian Stock Exchange.

“The Jansen project offers an important high-yield growth option in the world’s best potash basin and an attractive investment jurisdiction,” BHP says in its 2021 results announcement.

Activist council

It appears that BHP has heeded some of the advice from activist investor Elliott Advisors, who has been urging BHP since 2017 to unify its stock listings and take other necessary steps to unlock $ 22 billion (R325 billion) in value and improve returns on capital.

Elliott’s recommended first step was to unify BHP’s dual-listed company structure into a single Australian-based, tax-resident listed company.

Elliott also recommended separating from BHP’s US oil business and listing it on the New York Stock Exchange. The continued inclusion of this in the portfolio obscured the true value of the group.

South32’s spin-off from BHP in 2015 was a step in the right direction, according to Elliott, but the inefficiencies of maintaining a double listing in London and Australia prevented the group from offering optimal shareholder value.

BHP London shares are traditionally traded at a discount to Sydney listed shares due to lower dividend taxes in Australia.

Unification process

The unification proposal must be approved by 75% of shareholders, which should be easily accomplished given the already visible value unlock taking place this week.

The Financial Times reports that existing listing rules in London mean that BHP will be removed from the stock market’s first-class index, and that will cause many UK shareholders to sell.

BHP CEO Mike Henry told analysts that the costs of unifying the group’s share prices had been lowered following the resolution of a tax dispute in Australia.

The one-time costs of unification are likely to be $ 400 to $ 500 million.

The numbers

Copper production fell 5% to 1,636 kt (thousands of tons), largely due to Covid-related lockdowns in Chile. Total iron ore production increased by 2% to 254 Mt (million tonnes). Production of between 249 and 259 Mt is expected in fiscal 2022. Coal production for the year was down 1% to 41 Mt.

Iron ore’s contribution to Ebitda (earnings before interest, taxes, depreciation and amortization) was $ 26.3 billion for the year through June, fattened by an Ebitda margin of 77%. Copper contributed $ 8.5 billion, followed by oil ($ 2.3 billion) and metallurgical coal ($ 593 million).

The group reported a record dividend payment of $ 15 billion for the year, the latest in a string of extraordinary gains announced by miners in recent months. The company used the cash inflow to pay off debt by 66% to $ 4.1 billion.


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Source: BHP 2021 Annual Results Presentation

If shareholders approve the unification of the group’s stock listings in Australia, this is likely to take place in the first half of 2022, with the proposed merger of its oil business with Woodside to follow.


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