Category Archives: potash

Alberta NDP confident Agrium will maintain presence after Potash merger

NDP confident Agrium will maintain Alberta presence after Potash merger

JAMES WOOD, CALGARY HERALD
Published on: September 6, 2017 | Last Updated: September 6, 2017 5:14 PM MDT

Agrium CEO

Agrium president and CEO Chuck Magro speaks, during the company’s annual general meeting in May 2014. LARRY MACDOUGAL /THE CANADIAN PRESS

Alberta’s NDP government says it’s confident that Calgary is the place to be, as the issue of head office jobs related to the proposed merger of Agrium and Potash Corp. of Saskatchewan again comes to the fore.

Under terms of the merger, which is still under regulatory review, Saskatoon will be the location of the “registered head office” of the newly-formed Nutrien, while Calgary will also retain a substantive corporate office.

However, Chuck Magro, the CEO of Agrium who will become Nutrien’s chief executive, will continue to live and work in Calgary while maintaining a secondary residence in Saskatoon.

In recent days, Premier Brad Wall has been banging the drum on the issue, saying the Saskatchewan government wanted to ensure that Saskatoon is “indisputably the head office” and that it had “the maximum number of head office jobs.”

Speaking to reporters in Regina on Wednesday, Wall said his government would “look at every option” to ensure Saskatoon was the true head office of the company.

But Alberta Economic Development Minister Deron Bilous said Wall is “desperate to show his residents he’s standing up for Saskatchewan,” but he suggested Magro’s continuing presence in Calgary is a strong indication that the city will be key to the company.

“I’m going to leave it to Albertans to see the writing between the lines, that you’ve got the CEO staying in Calgary,” Bilous said in an interview Wednesday.

“They may decide to open an office to meet some of Saskatchewan’s requirements. But, again, I’m confident that we’re going to continue to see . . . a number of positions will remain in the province.”

Bilous said Calgary’s status as an international hub and Alberta’s lower taxes make it a natural fit for what will be a global player in Nutrien.

“When you look at all the facts, our province stacks much higher than the province of Saskatchewan,” he said.

Richard Downey, Agrium’s vice-president of investor and corporate relations, said most of the work integrating the two companies is on hold while the deal remains under regulatory review in a number of jurisdictions.

But he said both cities will have “significant corporate offices, post-merger.”

“Nothing’s really changed,” said Downey.

“We’re a global company and there will be senior management at both Calgary and Saskatoon locations.”

Downey declined to put numbers on the current complement of employees in the PotashCorp headquarters in Saskatoon or the Agrium head office in Calgary.

He acknowledged there will be “some reduction in corporate office positions.”

The $36-billion deal by the new companies announced nearly a year ago was touted as a “merger of equals” that would create the world’s largest nutrient company and the third-largest natural resource company in Canada.

Under Saskatchewan legislation, the head office of PotashCorp — originally created in the 1970s as a Crown corporation — must be located in the province. Wall has pointed to a pledge made by PotashCorp in 2011, after the federal government blocked a hostile takeover by BHP Billiton, that the company would maintain a “strong and vital corporate headquarters” in Saskatchewan, with 11 of its 14 senior executives living and working in Saskatoon.

The Saskatchewan premier said Wednesday that having a CEO split time between cities — as former PotashCorp CEO Bill Doyle did — is “not optimal” but the overall number of head office jobs is the bigger issue.

He said Saskatchewan legislation provides a more favourable royalty rate for companies with head office jobs in the province.

“If we were able to provide that incentive, we could also move the other way,” said Wall.

 

 

 

Wall pledges to look at ‘every option’ to enforce 2011 PotashCorp pledge

Wall pledges to look at ‘every option’ to enforce 2011 PotashCorp pledge

ALEX MACPHERSON, SASKATOON STARPHOENIX

September 6, 2017 | Last Updated: September 6, 2017 6:12 PM CST

wall

Premier Brad Wall says his government won’t rule out using legislation or the province’s potash royalty structure to maximize the number of corporate headquarters jobs in Saskatchewan once the US$26 billion merger of Potash Corp. of Saskatchewan Inc. and Agrium Inc. closes later this year.

Wall, who last week spoke out about former PotashCorp CEO Bill Doyle’s 2011 pledge to maintain a “strong and vital corporate headquarters” in the province, told reporters on Wednesday that potash mining companies currently receive incentives based on head office jobs in Saskatchewan.

“If we were able to provide that incentive we could also move the other way,” the premier said, adding that while Chuck Magro’s decision to maintain his primary residence in Calgary after taking over as CEO of the post-merger firm Nutrien Ltd. is “not optimal,” he is more concerned about maximizing the number of jobs in the province.

Echoing previous comments, PotashCorp spokesman Bill Cooper said in an email that the merger will create benefits for all of the combined companies’ shareholders and that PotashCorp’s “operations and workforce in Saskatchewan will remain core to the combined company.”

The merger, which remains under regulatory review, was announced in September 2016. It is expected to create a company with six of the province’s 10 potash mines, other assets around the world and about 20,000 employees. The company has said its “registered head office” will be in Saskatoon with corporate offices in Saskatoon and Calgary, where Agrium is based.

Alberta NDP economic development minister Deron Bilous said in a statement that Alberta has the lowest overall taxes in the country and Calgary is “one of Canada’s best cities for international operations.” Agrium has kept his government briefed on the merger, and it understands it will be “business as usual” for that company’s 2,000 workers in the province, Bilous added.

Agrium vice-president of investor relations Richard Downey declined to put numbers on the current complement of employees in PotashCorp’s Saskatoon headquarters or the Agrium head office in Calgary. He said both cities will have “significant corporate offices, post-merger,” following some reductions, with senior managers at both locations.

Under Saskatchewan legislation, PotashCorp — which was created in the 1970s as a Crown corporation — must have its head office in the province. Doyle made his pledge to the province in 2011, after the federal government, which was under pressure from Wall, blocked BHP Billiton’s attempted $40 billion hostile takeover.

“The spirit and the letter of the pledge that PotashCorp made to the province after the merger failed, after we intervened on the merger, we’re going to look to uphold (it) and we’re going to look at every option to do that,” Wall said.

Agrium and Potashcorp provide update for proposed merger of equals

BRIEF-Agrium and Potashcorp provide update for proposed merger of equals

SEPTEMBER 7, 2017 / 6:08 AM

REUTERS

Reuters Staff

Sept 7 (Reuters) – Potash Corporation Of Saskatchewan Inc

* Agrium and Potashcorp provide update for proposed merger of equals

* ‍Regulatory review and approval process has progressed in all remaining jurisdictions.​

* ‍Now expect to close transaction by end of Q4 of 2017​

* ‍In canada and U.S., parties are working with canadian competition bureau and FTC to resolve final issues in superphosphoric acid, nitric acid​

* ‍Remedies under consideration are not expected to impact estimated $500-million of annual operating synergies​

* ‍“Both companies remain highly confident in consummating merger of equals​”

* ‍Informed that China’s MOFCOM, India’s CCI intend to condition deal approvals on divestment of some of Potashcorp’s offshore minority ownership interests​ Source text for Eikon: Further company coverage:

Nutrien confirms CEO will have primary home in Calgary, one day after Wall brings up PotashCorp head office pledge

Nutrien confirms CEO will have primary home in Calgary, one day after Wall brings up PotashCorp head office pledge

ALEX MACPHERSON, SASKATOON STARPHOENIX
Published on: September 1, 2017 | Last Updated: September 1, 2017 8:49 AM CST

Wall on Nutrien

Saskatchewan Premier Brad Wall says he wants to ensure Nutrien Ltd.’s head office is “indisputably” in Saskatchewan. MICHAEL BELL / REGINA LEADER-POST

An industry expert says Saskatchewan Premier Brad Wall’s decision to remind Potash Corp. of Saskatchewan Inc. of its former chief executive’s pledge to maintain its corporate headquarters in the province was likely motivated by concern over what will happen when the fertilizer giant merges with a massive agricultural supply firm later this year.

While the fertilizer market has shifted dramatically since Bill Doyle made his promise six years ago, the presence of a massive corporate headquarters in the province will have major direct and indirect economic benefits for the economy, as well as the government’s coffers, Brooke Dobni said.

“There’s no doubt the government’s got its ear to the ground. They’ll be hearing things, nothing confirmed, so they just want to … probably just reaffirm, ‘By the way, we had this pledge in 2011 and don’t forget about it,’ ” said Dobni, who teaches business strategy at the University of Saskatchewan’s Edwards School of Business.

Wall told reporters on Wednesday in Regina that he expects the “spirit and the letter” of PotashCorp’s promise — which was made a year after the federal government blocked BHP Billiton’s $40 billion hostile takeover of the Saskatoon-based company — will be reflected in Nutrien Ltd., which is expected to form when the merger closes.

“We want to ensure that Saskatchewan, as the head office for this company, has the maximum number of head office jobs, that the presence in this province is indisputably the head office,” Wall said, adding that the province’s new Energy and Resources Minister, Nancy Heppner, will contact both companies to make the case for Saskatchewan.

The merger was announced in September 2016 as a response to “fierce” fertilizer market conditions, and is expected to result in a new company employing about 20,000 people and valued at US$26 billion. Agrium CEO Chuck Magro will serve as Nutrien’s chief executive; PotashCorp CEO Jochen Tilk will be its executive chairman.

PotashCorp and Agrium said at the time that the then-unnamed firm’s “registered head office” would be in Saskatoon, with corporate offices in Saskatoon and Calgary. A registered head office can be, but is not necessarily, the same office where a company’s executives work.

PotashCorp spokesman Randy Burton confirmed on Thursday that Magro will continue living in Calgary while maintaining a secondary residence in Saskatoon and travelling extensively. More details about Nutrien’s senior executive team — Wayne Brownlee and Steve Douglas have already been announced — will be unveiled after the deal closes, Burton said.

“While the merger process is ongoing and details are not yet finalized, our operations and workforce in Saskatchewan will remain core to the combined company … In addition to maintaining a strong workforce at our operations, the new company will maintain the best practices of both companies, including community involvement and investment,” Burton wrote in an email.

In a 2011 letter to Wall, former PotashCorp CEO William Doyle expanded on seven commitments to the province made in late 2010, including a pledge that the company would maintain a “strong and vital corporate headquarters” in Saskatchewan, with 11 of its 14 senior executives living and working in Saskatoon.

Wall accepted the pledge in a return letter, and said it indicated that the company was committed to the province.

While Saskatchewan and Alberta are likely eager to retain as many jobs as possible, Nutrien will ultimately be shaped by financial and commercial factors because both PotashCorp and Agrium — which are publicly traded — must do what is best for their respective shareholders, Dobni said.

“There’s always a winner and a loser on these mergers. But the bigger picture is you’ve got to remember why they’re merging, and the new company that’s going to come out of there and the value that they’re going to generate over the longer term — more potash, probably higher prices.”

 

K+S Potash Canada and Pacific Coast open handling and storage facility

K+S Potash Canada and Pacific Coast open handling and storage facility

Cecilia Jamasmie

August 28, 2017

Mining.com

K+S Bethune mine opening 2

K+S Potash Canada (KSPC) and Pacific Coast Terminals (PCT) celebrated Monday the opening of a state-of-the-art potash handling and storage facility at PCT’s Port Moody terminal.

The port facility is the western port destination for potash from KSPC’s new multibillion dollar Bethune mine in southern Saskatchewan, the first new potash mine in Canada’s premiere potash belt in nearly 50 years. KSPC, a subsidiary of the K+S Group, an international resources company headquartered in Germany, celebrated the Grand Opening of the mine in May of this year and commenced production the following month.

“This port facility is essential to the success of our Canadian potash operations,” says Dr. Burkhard Lohr, Chairman of the Board of Executive Directors of K+S. “In Saskatchewan, we now have access to high-quality resources for generations to come – and from here, in Port Moody, we will deliver our products to customers around the world.”

In 2014, KSPC and PCT signed a long-term agreement to ensure that products from KSPC’s Bethune mine would be delivered to international clients in a secure and competitive manner. The agreement included modifications to PCT’s existing facility as well as the construction of a new potash storage building on the site. Now that these modifications have been completed, PCT’s site is the most innovative of its kind in the world.

“We are proud to have partnered with K+S Potash Canada on this exciting project,” says Lorne Friberg, President and CEO of Pacific Coast Terminals Co. Ltd. “The expansion of our operations allows for a greater contribution to the City of Port Moody in terms of new jobs, additional municipal taxes, and increased support to local community organizations and events. Adding potash to our portfolio contributes to the sustainability of PCT, and is key to our strategic positioning.”

Modifications to the site include a railcar unloading facility; underground and above ground conveyor belts; new transfer towers; and a 263 metre-long storage warehouse with capacity for 160,000 tonnes of product. The facility is able to unload a 18,000-tonne train in just four and a half hours. Ships with a capacity of 70,000 tonnes can be loaded at the quay.

“I would like to congratulate everyone involved in this impressive project,” says Dr. Ulrich Lamp, President and CEO, KSPC. “I would also like to acknowledge the support we have received from the community of Port Moody. This project has required collaboration from many sides, and we are grateful to all those involved.”

Potash from Bethune will be transported to the new facility in unit trains pulled by up to five Canadian Pacific locomotives, at a total length of approximately 3 km. Potash delivered to PCT’s site will be destined for China, Southeast Asia, India, Brazil and other international locations.

All sales and distribution of the potash produced at the Bethune mine will be managed by the K+S Group’s well-established and experienced global distribution structure.

BHP explores $2 billion stake sale in Canada potash mine

AUGUST 25, 2017

REUTERS

BHP explores $2 billion stake sale in Canada potash mine: sources

John Tilak and Greg Roumeliotis

 BHP Jansen shaft

TORONTO/NEW YORK (Reuters) – Anglo-Australian mining giant BHP Billiton Ltd is considering selling a 25 percent interest in its Canadian potash mine project, a stake that could be worth close to $2 billion, people familiar with the matter told Reuters.

The move comes as activist investor Elliott Management Corp has been pushing the company for changes. BHP is working with an investment bank for the potential stake sale in its partly built Jansen, Saskatchewan potash project, the sources said this week.

For BHP, the move will help share the risk of developing the mine and reduce its exposure to the project, said the sources, who asked not to be identified because the deliberations are confidential.

BHP laid out options for the Jansen project in an investor presentation dated Aug. 22, saying it could wait, find a partner, divest or optimize it. BHP spokeswoman Bronwyn Wilkinson said it was too early in the process for the company to have determined the size of a potential stake sale.

“If you bring in a partner, you can share the capital and risk and, depending on who the partner is, help secure an off-take (supply agreement) or offer expertise,” Wilkinson said.

BHP, which will keep control of the mine, is not tied to the 25 percent, and the final stake sold could depend on offers, the people said. BHP’s 4-million tonne mine would cost about $8.5 billion to build, with more than half of that still uncommitted.

The company does not need the cash either, so it is not in a hurry, the people said. The company’s underlying profit surged to $6.7 billion in the recent fiscal year.

BHP’s U.S.-listed shares jumped, rising as much as 4.5 percent to hit a two-year high of $43.60. They were up 2.3 percent at $42.68 in afternoon trading in New York.

The potash mine has become the latest front in the battle between BHP, the world’s top miner, and Elliott, a hedge fund that has challenged some of the world’s biggest companies.

Elliott’s demands include getting BHP to spin off its U.S. oil and gas assets, doing away with its dual-listing structure, and improving shareholder returns. BHP earlier this week said it would exit the U.S. shale oil and gas business.

In July, BHP potash analyst Paul Burnside made a case for potash, arguing that a counter-cyclical investment would help position the company for rising demand for the commodity over the next few decades.

Elliott attacked BHP’s plans to enter the potash fertilizer market, which is facing over-supply and sluggish prices. Analysts are cautious about the sector.

Global prices of potash, a crucial crop nutrient that helps corn and other crops withstand stress, are low due to a slump in farm prices and rapid expansion of mining capacity by producers.

The company said this week it would not seek board approval in 2018 as expected for capital to finish building Jansen due to uncertainty in the potash market. Some analysts interpreted the comments as delaying the project. Production could start in the mid-2020s, BHP said.

The potash asset is expected to attract interest from global players, including Indian and Chinese firms, the people said.

Since India relies entirely on imports for potash, Indian fertilizer companies looking to sidestep price volatility could look to take advantage of attractive valuations.

Indian Potash Ltd, IFFCO, Deepak Fertilisers and Petrochemicals Corp, Rashtriya Chemicals and Fertilizers Ltd, Coromandel International Ltd are some of the top potash players in India.

Last month, Reuters reported that Indian agrochemicals producer UPL Ltd is exploring a bid of more than $4 billion for the agrochemicals business of Platform Specialty Products Corp, in a sign that Indian agriculture firms were actively scouting for North American assets.

Shale may be gone but BHP won’t ditch potash

Shale may be gone but BHP won’t ditch potash

Frik Els

Mining.com

Aug 23, 2017

 

BHP Jansen at sunset

The sun is not setting on Jansen. Image: BHP

On the face of it BHP caved into demands from activist investor Elliott Advisors when it suddenly announced this week that it’s actively seeking to exit oil and gas.

When it comes to potash however, the Melbourne-based company (Elliott also wants BHP to ditch its Australian listing, but that’s a fight – or should that be stoush – for another day) appears to be digging in its heels.

If you were looking for management missteps BHP’s petroleum business was always an easy target. No-one spending top dollar on tight oil in 2011 when crude was in triple digits doesn’t look foolish today. And despite similarities mining and oil doesn’t appear to mix – just ask Freeport.

“Given that we do think some time in the 2020s we are going to see a requirement for some form of new greenfield production […] the same way as we think that’s not so true for copper”

But Elliott did not mince words about BHP’s potash plans either.

The fund called the Jansen project in Saskatchewan just another example of the company’s “dubious strategy of ‘Thinking Big’ — a concept that has been disastrous for BHP shareholders”. Just to make sure the message sank in, Elliott said bringing Jansen into production would be “a severe strategic misstep”.

With a final bill north of $12 billion BHP is certainly thinking big with Jansen, regarding it as a business that could one day rival its Western Australia iron ore division. While attention has been focused on the announcement that the project won’t come before the board before 2019, BHP remains essentially on the same development path for Jansen.

The company is spending $500m to finish Jansen’s two shafts. And as CFO Peter Beaven helpfully explained to a banking analyst if you don’t finish the work the shafts will collapse “which doesn’t make any sense at all.”

Andrew Mackenzie also pointed out that once the shafts are completed by the end of 2019, Jansen would be “totally de-risked” and engineers would have “dealt with all the difficult parts”. That would make it easier to sell or in Mackenzie’s corporate parlance “crystallize value”. Then according to Mackenzie: “We will only be three years away from first potash.” Production in 2023 has been the plan all along.

In its outlook, BHP said overcapacity in the potash industry would “likely get worse before it gets better” and greenfield projects are slated to enter the market “through 2021”. But new supply is also entering the market amid record demand for the crop nutrient – Chinese imports are likely up more than 30% this year.

BHP admits potash demand is volatile, but its forecast trend demand growth of 2m tonnes per year through the 2020s does not seem overly optimistic.

Perhaps most telling of the extent of support Jansen enjoys within the company is Mackenzie hinting that potash may be BHP’s best (if not only) growth opportunity: “Given that we do think some time in the 2020s we are going to see a requirement in [the potash] market for some form of new greenfield production […] the same way as we think that’s not so true for copper.”  Well in the same way it’s not so true for iron ore or coal either.

There is no shortage of detractors – just read MINING.com’s comment section whenever Jansen is mentioned. But one bullish (and seasoned reader) predicted the fate of the shale assets and Jansen this way more than a month ago.

I remember when the “smart” money types were denigrating Escondida. The development of greenfields has always been BHP’s best route to success – not acquisitions like shale operator PetroHawk.

 

 

 

 

BHP’s New Chairman Heralds Era of Tougher Focus on Spending

BHP’s New Chairman Heralds Era of Tougher Focus on Spending

By  David Stringer

August 22, 2017, 6:02 PM CST August 23, 2017, 2:43 AM CST

Bloomberg

BHP Billiton Ltd.’s moves to ditch its U.S. shale assets and halt a rush into the potash market signal an era of more disciplined spending under the top miner’s incoming chairman.

Montreal-born Kenneth MacKenzie, 53, who takes up the post next month, is viewed by investors and analysts as more likely to focus on investment returns, after influencing BHP’s decisions to exit shale and delay proceeding on the $4.7 billion first phase of the Jansen project in Canada.

“They are talking more now about prioritizing projects based on return on capital,” according to Craig Evans, a Sydney-based portfolio manager at Tribeca Investments Partners Pty., a BHP shareholder and one of the miner’s more vocal critics in recent months. “I’d like to think this is the emergence of a bit more rigor on capex — and that’s coming from the new chairman.”

MacKenzie, appointed to BHP’s board last September and credited for doubling the market value of Australia’s largest packaging company, Amcor Ltd., in a decade-long spell as chief executive officer that ended in 2015, has met in recent weeks with more than 100 investors on a global tour that’s taken in Australia, the U.S. and the U.K.

A willingness to listen to shareholders was again apparent in board changes announced Wednesday. Grant King, the ex-Origin Energy Ltd. CEO appointed as a director in March, decided not to stand for election later this year “owing to concerns expressed by some investors,” according to a BHP statement. Fellow director Malcolm Brinded also opted to step down from October.

The producer’s strategy shift shows “an emergence of the rhetoric we’re going to see from Ken, in terms of where things are going to need to sit on the priority scale to have capital allocated to them,” Tribeca’s Evans said in an interview Tuesday. Melbourne-based BHP declined to comment.

BHP’s shares added 0.2 percent to A$26.04 in Sydney on Wednesday. Its bonds also climbed, with the 750 million euros of hybrid notes rising almost 1 cent on the euro to 119 cents, the highest since they were sold in 2015, according to data compiled by Bloomberg. The company’s 3 percent bonds due in May 2024 climbed almost 1 cent to 116 cents, the biggest gain in more than a year.

BHP’s CEO Andrew Mackenzie set out plans to improve returns and capital allocation in a speech in May 2016 and insisted Tuesday in an interview with Bloomberg Television that the decisions on shale and potash had been under consideration for several years, and weren’t a response to investor activism.

Paul Singer’s Elliott Management Corp., which began a public campaign in April urging BHP to overhaul its portfolio and boost payouts, last week backed MacKenzie as a chairman likely to heed shareholders’ calls for improvements. Elliott didn’t respond to a request for comment.

While BHP forecasts capital expenditure will rise about a third to $6.9 billion in the 12 months through June 2018, it has pledged to hold project spending to less than $8 billion annually through 2020, a fraction of the $23 billion total it deployed at its peak in 2013.

Show Caution

The producer should toughen its spending criteria and only develop projects that will deliver returns above 15 percent, Sydney-based Deutsche Bank AG analyst Paul Young said in a report last week. Aside from mothballing Jansen, BHP should also show caution on a potential $5 billion expansion of the Olympic Dam copper mine in Australia, according to Young.

BHP wants to improve the company’s average return on capital employed to about 20 percent by fiscal 2022 from 10 percent in the year ended in June, Chief Financial Officer Peter Beaven said Tuesday in a presentation. “There is still much more to be done, and this is where we’re focusing our efforts,” he told analysts on a conference call.

 BHP capital returns Aug 2017

MacKenzie’s appointment to replace Jacques Nasser, who has led the miner’s board since 2010, shows “a radical shift in strategy,” Sanford C. Bernstein Ltd.’s London-based analyst Paul Gait wrote in a note last month.

“It’s difficult not to see that in some of these changes,” Gait said by phone on Tuesday. “A focus on returns, on better capital allocation and tighter investment criteria are going to play a huge role on his watch.”

“That’s what he is known for — his reputation is predicated on maximizing returns on capital, and holding management teams to account,” said Gait.

Wesfarmers Ltd.’s outgoing finance director Terry Bowen and ex-BP Plc executive John Mogford will be appointed to BHP’s board from October, the producer said in its statement Wednesday. Bowen’s tenure at Wesfarmers has been noted for “a focus on improved cashflow and cost efficiency,” BHP said.

Ex-Royal Dutch Shell Plc exploration chief Brinded, a BHP director since 2014, chose to stand down as a result of “ongoing legal proceedings in Italy relating to his prior employment,” BHP said. Shell and Eni SpA are the subject of scrutiny over the acquisition of an offshore oil field in the Gulf of Guinea.

 

 

 

BHP to quit U.S. shale business as annual profit surges

AUGUST 21, 2017 / 4:37 PM

REUTERS

BHP to quit U.S. shale business as annual profit surges

James Regan

BHP Andrew Mackenzie

SYDNEY (Reuters) – BHP Billiton, the world’s largest miner, reported a surge in underlying full-year profit on Tuesday and said it would exit its underperforming U.S. shale oil and gas business, pleasing disgruntled shareholders who called for a sale.

The Anglo-Australian mining giant, which is under pressure from U.S. hedge fund Elliott Management to rethink its investment in oil and boost shareholder returns, was buoyed by a recovery in industrial commodities markets.

It generated more cash than even in some years of the mining boom, slashed net debt by nearly $10 billion to $16.3 billion and tripled its final dividend to $0.43 a share.

Underlying profit of $6.7 billion was below expectations for $7.4 billion, according to Thomson Reuters I/B/E/S, but the market focused on the lower debt and the company’s determination to exit U.S. shale, pushing its London-listed shares up 2.4 percent by 1354 GMT.

“Net debt looks very impressive … so the cash looks like it was applied to deleveraging versus extra dividends,” Shaw and Partners analyst Peter O’Connor said.

BHP joined other miners that have boosted payouts in the current earnings season to reward shareholders following a resurgence in commodity prices. Rio Tinto and iron ore miner Fortescue Metals both paid record dividends, while Anglo American reinstated its dividend.

Facing calls from some shareholders to dispose of the shale business it acquired at the height of the oil boom, the miner said it was working on an exit over the next two years.

Chief Executive Andrew Mackenzie said the preference would be a small number of trade sales. Other options could include a demerger or asset swaps.

“We certainly have plenty of people interested in taking a look,” Mackenzie said on a media call. “Our determination to exit means that we have other ways to exit that do not necessarily depend on … a competitive set of willing buyers.”

Fund managers including Elliott and Tribeca have been agitating for shale’s divestment, along with higher shareholder returns and the elimination of dual-structured Australia and London stock listings.

Tribeca welcomed BHP’s comments that shale was no longer core to the company.

“That was our approach. We didn’t see it fitting strategically in BHP. We think they can realize value ahead of market expectations for the U.S. onshore business,” Tribeca analyst James Eginton said..

Elliott, which last week raised its stake in the miner’s London-listed arm to 5 percent, declined to comment.

COMMODITY SURGE

BHP’s underlying profit surged from $1.2 billion a year ago as it benefited from a 32 percent rise in iron ore pricing in fiscal 2017, owing to greater demand from Chinese steelmakers, which buy the bulk of its ore.

Prices for copper, oil, coal, nickel and other commodities were also up, with only liquefied natural gas weaker.

“Strong momentum will be carried into the 2018 financial year, with volume growth of 7 percent and further productivity gains expected,” Mackenzie said.

He reiterated BHP’s commitment to its conventional petroleum business that includes operations in the Gulf of Mexico, saying there were opportunities to make money over the next couple of decades.

In response to disappointment from some analysts at the size of the dividend, Chief Financial Officer Peter Beaven said BHP’s bias was towards further strengthening the balance sheet, but any further accumulation of cash, once a target of cutting debt to $10 billion-$15 billion was met, would go to shareholders.

Capital expenditure would be no more than $8 billion per year, he said.

At the bottom line, BHP swung to an attributable profit of $5.89 billion from a record loss of $6.39 billion a year ago.

In fiscal 2016, the bottom line was hit by $7.7 billion in write-downs, with Mackenzie vowing they would not be repeated in 2017.

Elliott’s other criticisms have focused on BHP’s development of its Jansen potash mine in Canada.

“It’s no different from any other asset. It needs to pass through our capital allocation framework. In other words, the risk return needs to be sufficiently attractive,” CFO Beaven said. “Until it passes that, it won’t go forward.”

Reporting by James Regan,; Additional reporting by Barbara Lewis in London, Sonali Paul in Melbourne and Anusha Ravindranath in Bengaluru; Editing by Richard Pullin and David Evans

 

 

 

BHP Delays Saskatchewan Mine After Activist Push

BHP Delays Saskatchewan Mine After Activist Push

By  David Stringer Perry Williams Haidi Lun

August 21, 2017, 4:11 PM CST August 22, 2017, 5:51 AM CST

BHP Andrew Mackenzie

BHP Billiton Ltd. is in talks with potential buyers of its U.S. shale assets, acquired in a contentious $20 billion deals spree in 2011, and will delay a move into potash after months of public skirmishes with activist investors led by Paul Singer’s Elliott Management Corp.

The reversal by the world’s top miner comes after new Chairman Ken MacKenzie, who officially starts his job next month, met more than 100 investors in recent weeks in Australia, the U.S. and the U.K. amid demands from some shareholders for a change in strategy. BHP’s stock in London rose to its highest in six months on Tuesday.

“We’re talking to many parties and we’re hopeful” of completing a small number of trade sales to divest the onshore oil and gas division, Chief Executive Officer Andrew Mackenzie told Bloomberg Television Tuesday in an interview, adding that the moves on shale and potash aren’t the result of shareholder pressure. “We have been moving in this direction for some time” on shale, he said.

Missteps on strategy by BHP’s leadership, including in the shale unit, have destroyed about $40 billion in value, according to New York-based Elliott, which launched a campaign to seek a range of changes in April. BHP’s 2011 shale deals had been too costly and poorly timed, while the eighth-largest producer in U.S. shale didn’t deliver expected returns, CEO Mackenzie said on an analyst call.

Elliott last month joined skeptics including Sanford C. Bernstein Ltd. and Argo Investments Ltd. in raising concerns that the $13 billion Jansen project in Canada could risk depressing already low potash prices.

BHP likely concluded the shale and Jansen assets were “not going to generate the returns that is going to make the grade,” said Macquarie Wealth Management Division Director Martin Lakos. “It’s most likely the Elliott activity has accelerated the shale sales process.”

Deutsche Bank AG last week called on BHP to mothball the operation, citing potential low returns. It’ll likely be two to three years before the potash market is in a position that would allow BHP to reconsider advancing the project, Mackenzie said.

BHP shares rose as much as 3.7 percent to 1,416 pence, the highest since Feb. 21, and were up 3.1 percent by 12:40 p.m. in London trading.

Discussions among BHP shareholders have been dominated by concerns over shale and potash, according to Craig Evans, a portfolio manager at Tribeca Investments Partners Pty, which holds the producer’s shares. Tribeca and other investors have also pressed the case with BHP directly, he said.

“Elliott put the first balls in motion on this in calling them to task,” Evans said. “It’s no coincidence that we’re talking about those issues now.”

Investors including AMP Capital, Schroders Plc, Escala Partners and Sydney-based Tribeca have added to criticism of BHP or offered support for some of Elliott’s proposals in recent weeks. Elliott didn’t immediately respond to a request for comment on the miner’s latest decisions.

BHP will also study a potential demerger or initial public offering of the shale unit, the Melbourne-based producer said Tuesday in a presentation. “We are keeping the other options there so we can proceed with a reasonable amount of pace. For now, we think a trade sale would work best,” Mackenzie said in the interview.

The U.S. onshore assets were free-cash flow positive in fiscal 2017, BHP said in a statement Tuesday, as it reported full-year earnings jumped five-fold on higher commodity prices. A sale of the shale unit could fetch about $8 billion to $10 billion, and may attract buyers including Anadarko Petroleum Corp., Macquarie Group Ltd. said in a July 24 note. Anadarko didn’t immediately respond to an emailed request for comment.

BHP are going to get better value than they would have two years ago after the surge in crude oil prices from last year’s 12-year low, David Lennox, an analyst at Fat Prophets, said on Bloomberg TV. The company has “probably picked an opportune time because we’ve seen the oil price come up from a bottom,” he said.

— With assistance by Ryan Collins, and Alex Nussbaum

 

 

 

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