Elliott’s BHP acquisition: Dividends Yes; Total Victory – Not yet;

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Who lightened the area?

Firstly, if we observe the subject closely, it is inviting to consider BHP Billiton as the one who gouged into demands by Elliott Advisors. As well they seem to have together agreed about selling BHP’s U.S. onshore oil & gas business.

The main thing to mention is that in an official letter from April, Elliott had 3 major points. Two of which were depriving the U.S. shale assets and pushing up the shareholder returns.

But the thing we ask ourselves is, whether the BHP’s decision was firmly inspired by Elliott.. Or it would have happened either way.

Observing the dividends, it is clear that BHP would follow it’s bigger fellow Rio Tinto moves. Trying to return as much cash as possible to their investors. In particular the huge boost of free cash flow coming from higher prices of their base: Iron ore and Coal.



Last Tuesday BHP said that it would triple its final dividend to $0.43 a share. Which is slightly below the expectations of analysts.

”The world’s largest mining company also posted a five-fold rise in annual underlying profit to $6.7 billion for the year to June 30, which was below the market consensus for earnings of around $7.4 billion. (Reuters)”

It could be argued the increase in the dividend was generous.

Second thing worth mentioning, is that BHP decided to pay down net debt. The debt was at the beggining reduced at $10 billion, and this move is definitely to strengthen the company’s balance sheet.

Furthermore, it is possible that Elliott would have preferred the FCF being generated by BHP & used for a share buyback. Makes it much more effective than being used in cutting debt.

“We have determined that our onshore U.S. assets are non-core.”

“We are actively pursuing options to exit these assets for value.” BHP said in its results presentation (Reuters)

Elliott definitely deserves credits for finding a way to enter BHP’s underperforming assets. It is also clear that at some point they saw that $20 investment in shale, made 6 years ago, was not the greatest move they made.


Investors Aims

What is likely to be of more relevance to Elliott, and other investors, is how sustainable are BHP’s increased dividends.

When making a commentary, the company was very cautious. Stating that Crude Oil prices will trend higher. Steel demand will slightly grow. While the cost curve for the iron ore is going to continue flattening.

BHP is seeing a slight uncertainty in China’s metallurgical coal; but the outlook for overseas market is in all positive.

In tanto, it seems that BHP isn’t expecting the prices of its major commodities to rally strong. But, it equally it is not forecasting any important declines.

In conclusion, the company should remain a strong generator of cash.  Adding & assuming it remains committed to capital discipline. Returns to main shareholders can increase. But, it’s highly unlikely that the massive jump in dividends, as the one from June 30th will repeat soon…


BHP enforces to dredge new nickel mines in Western Australia

Today’s Morning trade Global

Base metals prices on the SHFE were mainly lower today. The copper prices were oscillating between slight gains and losses. As consolidation set in following the rally seen since May 19.

The most-traded July copper contract on the SHFE was unchanged at 45,770 yuan ($6,644) per tonne. As of 05:00 BST. Around 163,000 lots of the contract have changed hands so far.

In the meantime, three-month copper contract on the London Metal Exchange fell $45 to $5,669 per tonne.

The existing rally in copper prices since late last week is mostly driven by macroeconomic factors. For example a weaker dollar, stronger crude oil prices, etc… 

“So far this year, SHFE copper prices have tended to move lower after rebounding for a short while. We think fluctuations will continue for copper prices as it seeks its low for this year.” (Beijing analyst said)

“There has been some supply disruptions. But it was not enough to cause prices to surge. Which means the problem could be with demand.”


China’s rating

On Wednesday, Moody’s downgraded China’s rating to A1 from Aa3. Happened on expectations that China’s financial strength will erode somewhat over the coming years. With economy-wide debt continuing to rise as potential growth slows.

“While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt. Also the consequent increase in contingent liabilities for the government.” (Reuters reporting on China’s subject)
After falling to as low as 96.79 on Monday a rebound in the dollar index on Tuesday also checked investors’ appetite for commodities.

Crude oil prices were supported by expectations that members of the OPEC will agree to extend their supply cut into next year during their meeting in Austria on Thursday May 25.


BHP – New Nickel Mines


BHP Billiton is looking for environmental and ecological approval. In order to dig two new mines to extend the life of its Nickel West unit. The planned mines are located in the state of Western Australia.

One of the world’s top nickel producers – Nickel West, applied for EPA of Western Australia. It is the Environmental Protection Authority. According to info found on their official site, the company asked to clear 842 hectares (2,080 acres) for two open pit mines.

BHP has earmarked about $2 million per month during 2016 and 2017 for making improvements at Nickel West. (Reuters)

Nickel West gets lots of the concentrated ore it uses, to feed its 100,000 tonnes-per-year Kalgoorlie nickel smelter, from its neighbor Mount Keith mines. It also has deals with other miners operating nearby for additional feed.

“At the current rate of production, the resource supporting Mount Keith will need to be sustained from other ore sources at some stage over the next five years.”

“Securing environmental approval for the proposed Mount Keith Satellite Project will help to ensure Nickel West has a strong future and will continue to make a significant economic contribution.” (BHP)


Nickel prices

Observing the period of past 6 years, the Nickel prices have fallen nearly 70 percent, due to a global supply glut. The 70% is serious number, and it affected the market firmly.

”BHP booked a $1.25 billion after-tax impairment on Nickel West in 2013. A year later, following an unsuccessful sales process, BHP took Nickel West off the auction block.” (Reuters)


Elliott pressures BHP to get rid of its petroleum business

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Petroleum business

Today, Elliott Management increased the pressure for strategic changes at BHP. It is asking for a detached review of the mining giant’s petroleum business.

Elliott, as important investor, has built up a 4.1 percent stake in BHP’s UK-listed arm. It is now urging changes, cause it needs to boost up shareholder value. They consider that there are clear signs the market will be receptive to a new strategy for BHP.

“There is extremely broad and deep-rooted support for pro-active steps to be taken by management. To achieve an optimal value outcome for BHP’s petroleum business following a formal open review.” (Reuters)


Changing the structure

Firstly, Elliott is pushing for BHP to break down its dual-listed structure. Secondly, it asked BHP to spin off its U.S. oil and gas assets, and boost returns to shareholders. It gave the tasks to BHP at April 10th – BHP rejected all of them.

They sent the latest letter just hours before BHP CEO Andrew Mackenzie was supposed to speak at a Bank of America Merrill Lynch mining conference. Which was happening in Barcelona, and was being attended by Elliott.

“This latest move by Elliott is well-timed to coincide with Mackenzie’s speech. It almost forces BHP to directly address them on this.” Said an analyst

BHP was disappointed because Elliott presumed the company was not open to suggestions. And that it had been deceiving in its response to the New York-based investor’s calls for a change in strategy.

“We reject both claims.” BHP said.

BHP expected to meet with Elliott in Barcelona.

“The current period of shareholder activism could result in a break-up and/or a significant alteration of the company’s structure.” (Citi bank)


Listing Shift

Responding to concerns raised by the Australian government, Elliott on Tuesday backtracked on its proposal for BHP to have its main listing in London. Explaining that it could remain incorporated in Australia and stay an Australian tax resident, retaining full listings on the Australian and London bourses.

BHP has said the costs of scrapping its dual-listed structure significantly outweigh the benefits.


BHP buybacks

Elliott also criticized BHP’s track record on share buybacks and suggested the company make a $6 billion buyback in 2018.

If the current valuation remains at the same level, this would lead to $2.4 billion in value accretion. Which is equivalent to more than 12 times Elliott’s expected costs of unifying BHP’s dual listings.

Elliott estimated this cost of unification at $200 million.  In addition it said BHP’s $1.3 billion estimated cost was overpriced.

Mackenzie already emphasized before that it is the wrong time for BHP to sell its U.S. petroleum assets. The oil prices are low,  still somewhere near $52 per barrel.

In conclusion, BHP has also searched to highlight the action it is taking to divest non-core parts of its U.S. shale assets.