Flexibility unearths promise for miner BHP
MINING giant BHP crammed a lot into last week’s full-year results.
Copper and iron ore accounted for 82.5 per cent of revenue in 2021. With market prices up 52 per cent and 69 per cent respectively, revenues and profits were only going one way – rising 41.7 per cent and 80 per cent.
Free cash flow more than doubled. The windfall is being shared through a dividend of $2.00 per share. That’s up 151 per cent year-on-year and $4.6billion above its target minimum.
But the really big news was a major portfolio and corporate shake-up.
Plans for a potash mine, a natural fertiliser, have been approved. The $5.7billion price tag is hefty, but it’s part of being a miner of BHP’s scale. More notable was the demerger of its petroleum business and shift to a unified corporate structure based in Australia.
The merger will see BHP investors handed shares in Australian oil and gas group Woodside, combining its own assets with BHP’s. With a number of benefits to this arrangement, we generally see it as a sensible move.
Oil and gas groups are out of favour as investors worry about the transition to low carbon energy. Stripping the assets out of BHP mean investors avoiding oil and gas can consider investing again – although large coal mines may still prove a hurdle.
A demerger, rather than a sale, avoids having to sell its petroleum assets at knockdown prices. Investors who value BHP’s petroleum exposure will continue to have an underlying position. Those that don’t can sell their Woodside shares.
The effect of becoming a single Australian company is more nuanced.
It improves flexibility, making mergers and acquisitions, such as the Woodside deal, easier. Since BHP will still have a London listing, the move shouldn’t affect shareholders hugely, but does mean it would fall out of the FTSE 100.
What the corporate juggling means for the 10.5 per cent dividend yield isn’t clear. However, with net debt much reduced and huge free cash flows the signs are promising.
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