BHP’s move to reshape its future wins tentative support from key shareholders
BHP investors have given tentative support to the mining giant’s biggest structural shake-up in a generation but the mining giant’s shares took a beating.
The market has smashed BHP shares after the announcement of its petroleum merger with Woodside, even as key BHP investors gave tentative support to the mining giant’s biggest structural shake-up in a generation.
BHP shares closed down $3.63, or 7 per cent, to $47.70 as traders sold off local stock to capitalise on an expected surge in the value of its London-listed shares – which traditionally trade well below the value of their local stock – after BHP said on Tuesday it planned to abandon its dual-listed structure.
Institutional shareholders tentatively welcomed the company’s moves to simplify its structure and ditch fossil fuels with the $40bn merger of its petroleum division with Woodside.
The global mining giant wants to abandon the dual-listed structure it adopted after its $US28bn merger with Billiton in 2001, retaining its primary listing in Australia, while merging petroleum with Woodside and entering the potash market.
BHP shareholder Janus Henderson said the move to simplify its structure and push ahead with “future facing” commodities was both sensible decisions.
“It reinforces my view that BHP is on a strategic pathway that is cleaner and clearer. It has the cash flow, operating focus, balance sheet, and environmental, social and governance credentials to hunt for opportunities and so participate even more in the decarbonisation mega trend,” Janus Henderson portfolio manager Tim Gerrard said.
Janus Henderson also backed the decision to hive off the petroleum unit, even as investors weighed up whether a 48 per cent stake in Woodside represented a fair ratio for BHP.
“They don’t want to commit a big chunk of their next five years’ capital spend into oil and gas. It’s better going elsewhere including potash and new opportunities in large-scale copper,” he said.
Fund manager Clime Investment Management also backed the move given climate pressures. “Clime likes the focus on future-facing commodities given the increasing importance of environmental considerations. The agreed exit from petroleum, via merger of BHP Petroleum with Woodside and distribution of Woodside shares, is a big step in this direction,” Clime portfolio manager Vincent Cook said.
“BHP has significant exposure to copper, which will play a central role in the global clean energy transition. Copper accounted for 23 per cent of 2021 EBITDA, but may well be higher at long term iron ore prices.”
Investment group Regnan questioned the green credential logic of shifting dirty assets away from the parent company.
“Swapping assets between companies typically does nothing to address these system level risks,” said Regnan research head Alison George.
VanEck, a shareholder of both companies, said the petroleum deal was a better result for BHP than Woodside, but questioned the overall value after the rally in oil prices.
