By Brian Robins
BHP has pushed back against claims made by activist investor Elliott Associates over the global miner's poor returns for investors, arguing it has billions of dollars in potential returns from new projects and exploration spending which will help boost the worth of the company in the near term.
Speaking late Tuesday at an investment conference in Europe, BHP's chief executive, Andrew Mackenzie argued that it can generate returns of more than 30 per cent on incremental investments in its shale assets in the US, for example, while the group is pursuing as much as $US25 billion ($33.6 billion) in major growth projects offering returns of better than 16 per cent.
These growth initiatives include the Spence copper project, with a decision due as soon as August, along with other projects such as the Olympic Dam project in South Australia and its phosphate project in Canada.
"Our focused petroleum exploration program has an unrisked value of over $20 billion ($27 billion), close to a quarter of which sits in low to medium risk prospects to be tested in the next two years," he said, as he pointed to recent successes in the Gulf of Mexico and Trinidad and Tobago, for example, along with the successful Trion bid, which "give us the confidence to accelerate our counter-cyclical investment".
"This strong momentum will be carried into the 2018 financial year.": BHP chief executive Andrew Mackenzie.Credit: Bloomberg
As well, additional technology programs cold achieve a further $US12 billion ($16 billion) in valuation uplift, he said, without giving specifics.
"We will remain disciplined and drive consistent and transparent application of our capital application framework, which includes cash returns to shareholders," he said.
His comments came n the wake of activist investor Elliott Associates ramping up its campaign for BHP to change, as it claimed "extremely broad and deep-rooted" support for BHP Billiton to review spin out its petroleum arm as part of a series of measures to lift group performance.
In a letter sent to directors, it has called for BHP to appoint independent experts to review its oil and gas operations, groups which are also removed from company advisors such as Goldman Sachs and Citi. Elliott argues these assets are undervalued by investors and should be spun out and listed in the US.
Elliott has pushed for BHP to "think big" in revamping its operations, taking a line from the miner's new advertising campaign.
"Elliott is now calling for an in-depth, open and timely independent review of the petroleum business – with full disclosure of the review result," it said.
Elliott is also pushing for BHP to collapse its dual listings on the London and Australian sharemarkets. It claims BHP would still be able to retain inclusion in UK sharemarket indices if its primary listing was in Australia, a claim which investment banking sources dispute.
In a detailed statement on Tuesday, Elliott claimed the global miner's investors want a renewed focus on costs while also lashing the company for its claimed attempted 'tax avoidance' with sources close to the activist investor pointing to the 'toxic' press stemming from the miner's channelling of some revenues via Singapore.
Elliott claims its recent meetings with local and overseas investors in BHP "reveals extremely broad and deep-rooted shareholder support for proactive steps to be taken by BHP management to review its petroleum business".
As a result, it says investors holding "tens of billions of dollars" of BHP shares support its campaign, it said, without giving further details.
Elliott said it noted this week's launch of BHP's "Think Big" rebranding theme.
"In this context, Elliott and other shareholders look forward to an end to BHP management's negative campaign on all the shareholder-value related issues raised by Elliott – to be replaced with a constructive and transparent approach to address the chronic underperformance shareholders are suffering," it claimed. "Only then may current management gain the trust of BHP's owners."
Elliott claimed BHP has not been receptive to its push to boost shareholder value, a claim which BHP has refuted.
"We are disappointed that the materials [issued by Elliott] claim we have not been open to suggestions and that we have been misleading in our response. We reject both claims," BHP said in a statement.
Following the Federal government's recent comments that it would block any move to shift BHP's domicile abroad, Elliott said it has changed its proposal so that the miner's incorporation would remain in Australia.
It would remain Australian headquartered and an Australian tax resident, Elliott said, retaining full ASX and LSE listings, with ordinary shares listed on the ASX.
Elliott said it wants BHP to have an independent party to assess the group's oil and gas assets, and not existing advisors to the group such as Goldman Sachs or Citi.
"Picking an investment bank they've used on recent deals is not good enough. There are plenty of experts out there," sources close to Elliott said Tuesday.
Officials with the investment group have stated they are a patient and determined shareholder who would be prepared for a long campaign.
Elliott described as "misleading and flawed" claims by BHP it could cost as much as $1 billion for the miner to collapse its dual listed structure, arguing it would cost around $200 million.
In its letter to BHP directors, Elliott highlighted what it claimed to be "BHP's chronic underperformance".
This "has included some of the worst value-destructive moves ever seen in BHP's peer group, including: circa $US23 billion ($31 billion) destroyed through the ill-fated foray into the US onshore petroleum sector; circa $US8 billion ($10.8 billion) spent on petroleum exploration activities with no apparent value created; and circa $US9 billion ($12.1 billion) destroyed in share buybacks made at inflated market prices.
"The scale of chronic underperformance at BHP is obvious on a number of measures. As just one example, BHP's total shareholder returns from November 2008 to date have been 128 per cent lower than Rio Tinto, its nearest peer."