BHP Billiton set to reap benefits of favoured status with Donald Trump

BHP has the president’s ear and a huge US investment agenda. No Australian company has ever been in such a position.

BHP Billiton’s Geoff Healy, Andrew Mackenzie and Jac Nasser wait to meet Donald Trump in New York this week. Pic: AP

Suddenly almost everything is going right for the world’s largest mining company, Australia’s BHP.

Not only is cash pouring into its coffers because of higher iron ore, oil and coal prices but, thanks to CEO Andrew Mackenzie and his team, much lower costs mean profits will skyrocket at a rate well above the estimates of most analysts.

In the past BHP would have been expected to shower shareholders with dividends but now the company is among an elite group of non-US companies----it has been chosen by president-elect Donald Trump to help “make America great again”.

I do not think Australia and even BHP fully comprehend the US potential being opened up for the Big Australian.

Trump has appointed Darwin-born Dow Chemical CEO Andrew Liveris to head the American Manufacturing Council and be “tasked with finding ways to bring industry back to America”. Part of the Liveris plan will be to duplicate the plan he gave to Australia in 2014 which we chose to ignore.

That plan involves expansion of chemical and other industries based on oil and gas. He will be implementing that in the US, which means oil and gas will be a huge growth business.

Even before Trump was elected US president, BHP believed there would be an energy shortage later this year, which would require greater US oil and gas production.

With Trump now planning much lower taxes and enormous investment in manufacturing and infrastructure the demand for oil and gas in the US is going to rise way beyond BHP’s earlier expectations.

And while the conversations between the president-elect and BHP chairman Jac Nasser, Andrew Mackenzie and Geoff Healy are unlikely to have gone into detail, BHP will have got the message — get out there and invest in higher oil and gas production and take advantage of Trump’s plan to slash US tax rates to levels much lower than Australia. And don’t be frightened to think about gas exports.

And BHP is well placed to lift production of its shale oil and gas, plus it has just under 24 per cent of BP’s Mad Dog 2 oil development in the Gulf of Mexico. Even better, BHP expanded its Gulf of Mexico acreage on the Mexico side of the border.

While no doubt BHP will lift its dividend given the looming profit bonanza, it now has a massive US investment agenda and the ear of the president-elect. That US investment will require massive cash outlays.

No Australian company has ever been in such a position and few world companies enjoy such a relationship with the US president.

There is no doubt that the fact that Nasser is a former world boss of Ford and probably has better US business connections than any other Australian, played an enormous role in BHP’s favoured status.

I think it is highly likely that the “Make America Great Again” campaign will take a lot longer than initial market expectations. That’s one reason why the US dollar is now falling.

Nasser is set to step down as BHP chairman midyear. I would urge BHP directors to make a strong request to Nasser to stay on as chairman for another year to allow Mackenzie to consolidate the favourable US position Nasser has helped create.

At the very least Nasser should be urged to accept a top non-executive position in BHP’s US operations.

Jac Nasser

When Nasser announced he was stepping down no-one could have imagined that in January 2017 he would be leading the company into talks with the president-elect.

For Australia looking for a recovery in mining investment the realisation that the Big Australian is set use the Australian iron ore cash bonanza to help “Make America Great” is not good news. BHP has one major project in Australia — Olympic Dam.

But Olympic Dam will now need to compete with BHP’s US copper interests for capital. And the South Australian government is doing everything possible to stop BHP going ahead by making South Australian power supply unreliable. There would need to be a complete change in attitude by the South Australians for Olympic Dam expansion to get the go ahead given the excitement in the US.