BHP agrees to exit oil business, approves giant new potash mine

After the deal, BHP shareholders will own about 48% of Woodside, the miner said in a statement Tuesday.
Image: James MacDonald/Bloomberg

BHP Group will merge its oil and gas operations with Woodside Petroleum as the biggest miner positions itself for a global shift away from fossil fuels and prepares to plow $5.7 billion into a massive new fertilizer mine in Canada.

After the deal, BHP shareholders will own about 48% of Woodside, the miner said in a statement Tuesday. The company also announced it will eradicate its dual-listing structure and move to a single primary listing in Australia.

Chief Executive Officer Mike Henry, who took over in January last year, is pivoting toward what BHP calls “future facing” commodities — metals and minerals vital to global efforts to reduce emissions, electrify cities and feed a growing global population. Tuesday’s announcements also help clarify a number of question marks for investors, who have been waiting years for a decision on Jansen, while the company has said previously its dual listing was up for discussion.

BHP generates the bulk of its profits from iron ore and copper — a metal that’s central to the green-energy transition — and benefited from soaring prices for both commodities over the past year. The company reported record free-cash flow for the year through June and announced Tuesday it will pay a final dividend of $10.1 billion.

The commodities giant is getting out of oil and gas as the fossil-fuel industry grapples with global pressure from investors and governments over climate action, prompting some larger oil rivals to shrink their core production and add renewable energy assets. While BHP has said it expects demand to remain strong for at least another decade, the company wants to avoid getting stuck with assets that will become more difficult to sell.

BHP has also finally approved the first stage of construction of the Jansen potash mine in Saskatchewan, Canada, after years of wavering over the huge price tag. The operation, expected to start production in 2027, will make it one of the world’s top producers of the crop nutrient.

“Potash provides BHP with increased leverage to key global mega-trends, including rising population, changing diets, decarbonisation and improving environmental stewardship,” the company said.

It’s also the latest sign that the biggest miners are ready to open their wallets to invest in new mines after years of austerity. The industry has been focused on shareholder returns and debt reduction after being penalised by investors for overspending. Smaller rival Rio Tinto Group announced last month it plans to spend $2.4 billion building a lithium mine in Serbia as it also seeks to expand in battery metals.

BHP has already spent about $4.5 billion on Jansen and dug two 1,000-meter (3 300-feet) deep shafts but held off on a final development decision as it weighed the risks of the large investment. Potash prices have jumped this year amid strong demand, as well as worries about supply after Belarus, one of a handful of producing nations, was hit by sanctions.

The Jansen approval follows BHP’s announcement last month that it agreed to buy a nickel mine developer in Canada. It’s also expanding existing nickel operations in Australia and building a stake in a copper company in Ecuador.

Like its biggest rivals, BHP reported bumper profits and dividends. Commodity prices surged in the past year as governments around the world unleash trillions of dollars in stimulus packages to help the global economy emerge from the pandemic, boosting demand for raw materials.

The dual listing dates back to 2001, following Australia-listed BHP’s merger with UK-listed Billiton, and had seen the companies managed and run as a single entity with shareholders having equal economic and voting rights.

The structure had previously come under pressure from activist investor Elliott Management Corp., which argued in 2018 that a reorganisation into a single company in Australia would add more than $22 billion in value to shareholders.

Underlying profit rose 88% to $17.08 billion for the year.

© 2021 Bloomberg

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