BHP Billiton shares surge on activist’s call for reform

Shares in the world’s biggest miner surge nearly 5 per cent on an activist New York hedge fund’s call for reform.

Outgoing BHP chair Jacques Nasser and CEO Andrew Mackenzie.

BHP Billiton shares have surged almost 5 per cent in late trade after one of its major shareholders urged the group to pursue a further restructure of operations.

Elliott Management Corp, which owns 4.1 per cent of the mining giant, said its three step plan would unlock value, spruiking the potential of an around 50 per cent lift in valuation.

“Despite being a leading global resources company with a portfolio of best-in-class large-scale diversified mining assets, in recent years BHP as an investment has underperformed a portfolio of comparable companies,” the investor wrote in a letter to the board.

“In our view, most of BHP’s underperformance in terms of total shareholder returns has been driven by the incomplete status of management’s streamlining and value-optimisation of BHP’s group structure and asset portfolio.”

Among the proposed changes would be a push to make BHP a single Australian-headquartered and tax resident company.

It currently has two legal entities in both the UK and Australia, but operates as one group.

Two other major changes would include another demerger — this time of its US petroleum assets that Elliott said were worth $US22 billion — and a new capital return policy that would see more buybacks.

In 2015, BHP spun off several mid-tier assets in what is now known as South32 through an $11bn IPO.

In this case, Elliott Management is eyeing a $US22bn spin-off of the petroleum arm onto the New York Stock Exchange.

In the letter, which it has publicly released, the activist investor indicated it had already held talks with the miner on the ideas detailed above.

“We are making this letter publicly available as a follow-up to our discussions with certain senior members of BHP’s management, in order to provide access to the details of the plan for all of BHP’s shareholders, and so that you can work openly with all shareholders with regard to our plan for significantly enhancing shareholder value,” the letter reads.

BHP Billiton’s shares (BHP) jumped 4.6 per cent to $25.73 by the close after trading near the flatline until the report gained interest around 3.30pm (AEST).

It is the latest sign of activist investors making their mark in Australia after short-seller Glaucus Research recently slammed sandalwood grower Quintis in a report that quickly wiped around a quarter of that group’s value.

On this occasion, however, the activist is seeking to boost the value of the target’s shares.