Iron ore Mount Tom Price, Pilbara, BHP on 13th November, 2001.THE AGE BUSINESS DIARY Picture by MICHELE MOSSOP.BHP chief executive Andrew Mackenzie has admitted the miner’s entry into the onshore US shale industry was poorly timed and it “paid too much” as it revealed plans to sell the controversial assets.
Mr Mackenzie said the preferred method to dispose of the “non-core” US shale investment was via a small number of trade sales, although other options were on the table.
“We’ll look at everything in order to decide what is the right way through this,” he said.
BHP’s exit plans came as it unveiled a $US6.73 billion ($8.5 billion) full-year profit for fiscal 2017 and rewarded investors with a more than tripling of its final dividend for the year.
The market reacted positively, pushing its shares up 1.3 per cent to $26.045 at 1pm.
The decision to sell its US shale acreage comes after a comprehensive review of BHP’s portfolio amid loud calls from activist investor Elliott Management for an overhaul of the miner, including a full exit from onshore US shale.
But Mr Mackenzie said BHP would not be rushed into a sale.
“We have now concluded that all these shale assets are non-core. We’ve used extensive input from independent advisers and we’re now pursuing options to exit our quality acreage. However, all options will take time, we will be disciplined and use this time productively to maximise the value of this acreage,” he said.
“We know and will know what the acreages are worth in our hands, and are prepared to be patient.”
BHP paid about $US20.6 billion on two major US onshore acquisitions about six years ago and has spent billions developing the assets in the years since. In its fiscal 2016 results, it wrote down the value of the assets by $US4.9 billion.
The exit, which did not come as a surprise, was welcomed by analysts.
“We’ve always been of the view that it’s not a core BHP business and it’s not a tier one asset. [And] it’s a declining return business,” Citi analyst Clarke Wilkins said.
“It was poorly timed, they paid too much and then they went too hard when they acquired it,” he said.
The miner will return $US4.4 billion to shareholders, lifting its final dividend to US43??, from US14?? previously, taking its full-year payout to US83??.
Underlying profit surged to $US6.7 billion – a major turnaround from the previous year’s $US1.22 billion but well below analysts’ expectations of about $US7.3 billion. Higher prices for commodities such as iron ore and coal contributed to the improved performance. The iron ore price climbed $US1.99 on Monday, to $US79.93 a tonne.
The company had net operating cash flow of $US16.8 billion and free cash flow of $US12.6 billion, allowing it to cut net debt by almost $US10 billion to $US16.3 billion.
Last year, the company slumped to a $US6.38 billion statutory loss (largely because of two significant exceptional items) and slashed its dividend.
BHP’s result for fiscal 2017 continues the strong performances of Australian miners this reporting season.
Earlier this month, Rio Tinto produced a thumping half-year profit and showered dividends on its shareholders, while Fortescue Metals Group on Monday posted a $US2.1 billion net profit and said it would more than triple its full-year dividend.
Mr Mackenzie lauded BHP’s performance.
“We had a very strong financial year. Free cash flow was $US12.6 billion, our second highest on record,” he said. “This strong momentum will be carried into the 2018 financial year.”
Investors, analysts and BHP insiders will be watching closely over coming days to see how Elliott, which has aggressively campaigned for an overhaul of BHP, reacts to the profit result.
Elliott has called for BHP to sell out of US shale, and has also called for an in-depth, independent review of BHP’s petroleum business.
BHP’s share price has climbed strongly over the past two months, from a year-to-date low of $22.10 on June 21.
Nine analysts have either a buy or outperform rating on BHP, with a further nine having a hold or neutral rating, according to Bloomberg data. Their 12-month average target price is $26.90.
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