Mining Giant BHP to Exit US Shale
Anglo-Australian mining group BHP is actively pursuing a sale of its US shale assets, which it has determined as non-core to its portfolio. The company unveiled the plans during its 2016-2017 full-year results, stating it was examining multiple alternatives.
In a conference call, BHP’s CEO, Andrew Mackenzie, said: “We think our best option at the moment is trade sales. We will keep a number of other mechanisms for exit open where perhaps the timing could be a little quicker.”
Activist investor Elliott Advisers, which has been in the headlines during the past several months over its dispute with Dutch coatings giant AkzoNobel, has been pressuring BHP, along with other shareholders, to divest the unit as oil prices continue to hover around the $50/bbl mark. When BHP bought the US oil and gas assets in 2011, oil prices were above $100/bbl.
Investors are said to have welcomed BHP’s decision and analysts estimate the unit could realize up to $11 billion. “This is a good result and recognition that shale doesn’t fit within BHP’s portfolio,” Craig Evans, portfolio manager at Sydney-based fund manager, Tribeca Investment Partners, told British newspaper Financial Times. Glyn Lawcock, an analyst with global financial services group UBS, added that the mining group should push ahead with a sale sooner rather than later as shareholders were unlikely to want an exit to drag on.
BHP also said it would no longer be seeking board approval in 2018 for the Jansen potash project in Saskatchewan, Canada. Elliott Advisers has been heavily critical of BHP’s plans to develop the giant potash mine, warning that it could be as disastrous as the involvement in US shale.
While BHP believes the potash market looks robust over the long term, with demand set to outstrip supply in the mid-2020s, it has postponed the project to what it termed “a later market window.” The group, which began exploring the deposit 10 years ago, is reported to have spent $3.8 billion on the project to date. It has always maintained that it would only approve the project if it met capital allocation tests, a statement BHP repeated last week.
Peter Beaven, BHP's chief financial officer, said the company is considering several options to improve the project’s economics. These could include delaying the sanctioning of further work on the mine and bringing in a partner to add expertise, secure offtake or share risk, as well as optimizing the design or divesting the project completely.
According to Reuters news agency, the mining giant is considering selling a 25% stake in the Jansen project, which could be worth close to $2 billion.