BHP chief Andrew Mackenzie has revealed the high-level Chinese access that has made it the miner most outwardly cautious about a US-China trade war, saying President Xi Jinping told him personally it would “punch back” against US sanctions.
In August, BHP moved ahead of most global agencies in downgrading its forecasts for 2019 global growth because of US-China trade tensions.
Yesterday at the company’s annual general meeting in Adelaide, BHP chairman Ken MacKenzie said the mining giant remained cautious about the potential short-term fallout from global trade tensions, despite not yet feeling a direct impact.
“Trade restrictions pose a real threat to economic growth by diverting trade flows, affecting prices and discouraging invest- ment,” Mr MacKenzie said, noting the company’s belief in longterm commodities demand growth was unshaken.
Andrew Mackenzie said BHP had good intelligence on China, including directly from Mr Xi.
“Last time I was in China I had a one-on-one with Xi Jinping in which he came up with the quote, when I was talking to him about protectionism, that ‘ in the West you have this thing, turn the other cheek — in China, we punch back’,” Mr Mackenzie told the meeting when asked about the company’s knowledge of China.
He said he visited China about three times a year, but did not say when his most recent visit was.
The chief executive said he was the only mining executive and the only southern hemisphere representative on a 15member panel of global chiefs that advises the Chinese president and prime minister.
In August, BHP cut its global growth forecasts by a quarter percentage point (to between 3.25 and 3.75 per cent) because of rising trade tensions.
The AGM was a relatively uneventful one for BHP, with shareholders largely happy about the recent decision to return $US10.4 billion ($14bn) of funds from the recent US shale oil and gas sale through a buyback and special dividend.
The Olympic Dam copper and uranium mine in South Australia was a focal point at the Adelaide meeting.
Ken MacKenzie doused speculation that it could be time to sell Olympic Dam, whose returns on investment are well below that of all other major BHP assets.
He said the improvements that could be made at the perennially underperforming mine had the potential to move the dial for even a company as large as BHP.
“Olympic Dam is a core asset for BHP, it’s the fourth-largest copper deposit in the world and we’re very excited about that,” Mr MacKenzie said.
“There’s no doubt it’s been performing below its benchmark, but we see that as opportunity.
“When we have a large asset like that, where there is an opportunity for improvement, it can move the needle on the whole company, so that’s a great opportunity.”
Another potential asset sale that the BHP chair hosed down was that of the Mt Arthur thermal coalmine in the Hunter Valley.
“We have no intention to sell that asset,” Mr MacKenzie said.
Mt Arthur is more valuable to BHP because the mine is housed under the London-listed BHP plc company.
This means it can use tax credits from its failed investment in the Ravensthorpe laterite nickel project in WA, which was also under BHP plc.
The tax credits are one reason BHP says that it does not make economic sense to unify its duallisted company structure.
Separately yesterday, BHP said that it planned to spend up to $US625 million exploring for oil in the Orphan Basin off Newfoundland and Labrador in Ken MacKenzie’s home country of Canada.
BHP said it had won auctions for two exploration blocks in the largely unexplored region, marking its entry into offshore Canadian exploration.
“This frontier opportunity has large oil resource potential which we identified through our Global Petroleum Endowment Study in 2016 and is in a low-risk country, with competitive fiscal terms” BHP oil and gas boss Steve Pastor said.
“This opportunity delivers on our exploration focus in conventional petroleum and will leverage our global deepwater development and operational expertise.”
The bid involves drilling and seismic studies over a six-year period with a minimum spend of $US157m.
It is budgeting to spend its first $US140m in 2020-21 and aiming for its first well the year after.
BHP chair Ken MacKenzie and CEO Andrew Mackenzie at the mining giant’s annual meeting in Adelaide yesterday