BHP AGM all about positioning for the future.

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BHP AGM all about positioning for the future

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  • BHP announces unified corporate structure in place of dual-listed BHP Billiton and portfolio alignment with decarbonised future.
  • Jansen Stage 1 potash project provides exposure to commodity of the future
  • Revised 75 cents a share cash offer for Canadian-based Noront, not dependent on Wyloo support

BHP is a world leader in processing minerals, oil and gas. It has 80,000 employees and contractors, based primarily in Australia and the Americas. In addition to its oil and gas interests, BHP is a major producer of iron ore, copper, nickel and metallurgical coal and has recently announced its interest in potash, a natural ingredient for fertilizer.  

AGM Commentary

The board reiterated the strong FY21 financial performance with earnings up 69 percent to US$37.4 billion, record free cash flow of US$19.4 billion, an increase of 140 percent, while net debt was down 66 percent to US$4.1 billion. Shareholders were rewarded with record total FY21 dividends of US$3.01 per share.   

The board also announced 2 strategic, transformational changes.

Firstly, BHP Group Limited will replace the Dual Listing structure that has existed since the BHP and Billiton merger in 2001, with a simplified, unified structure from 2022. The corporate restructure is subject to shareholder approval, expected in the first half of 2022. The unified structure means BHP will have a single parent entity, based in Australia, with one share registry and one share price.

Secondly, BHP’s portfolio will be more closely aligned with the global push for decarbonisation and electrification. The proposed merger of BHP’s petroleum businesses with Woodside is aimed at better positioning BHP to navigate this global energy transition, by providing scale and geographical diversity. Copper, nickel and steel will continue to support a global energy transition, while demand for potash will grow in support of the dietary requirements of a growing world population.   

Potash is used in fertilizers to support plant growth, increase crop yield and disease resistance, and enhance water preservation. This fertilizer is not an artificial or manufactured chemical, since it comes directly from the earth, which is rich in huge reserves of potash.

The world’s agricultural soils are gradually being depleted of potash after many years of intensive cropping and repeated nutrient removal during harvest. Potash is essential to maintain cropping and food production.

This is the rationale of BHP’s investment in the world’s best potash basin, the Jansen Stage 1 potash project in Canada. This provides BHP with a significant exposure to this future-facing commodity with strong demand and growth.

Cash offer for Noront Resources Limited (‘Noront‘)

BHP is seeking to acquire Canadian based mining company Noront, which is developing deposits of nickel, copper, platinum and palladium in Ontario. The cash offer is 75 cents a Noront share, up from BHP’s initial cash offer of 55 cents made on 24 July.   BHP’s increased offer follows a competing bid for Noront by Perth based and Andrew Forrest controlled Wyloo Metals, at 70 cents a share. The revised BHP bid is supported by Noront’s board, which has recommended shareholders accept the BHP offer, closing on 9 November.

Importantly, BHP’s offer does not require Wyloo’s support of the transaction to be successful, which requires a 50 percent acceptance level by Noront shareholders. In other words, if shareholders other than Wyloo support the offer and tender their Noront shares, the BHP offer will succeed.  

Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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