Activist Investor Takes Fresh Aim at BHP Billiton's Potash Plans
July 20 2017 - 12:20AM
Dow Jones News
By Robb M. Stewart
MELBOURNE, Australia--BHP Billiton Ltd.'s (BHP.AU) incoming
chairman faces another early test as one of the activist investors
dogging the mining company warned against misspending billions of
dollars in shareholder money diversifying into potash.
In its latest salvo, New York hedge fund Elliott Management
Corp. said it was concerned expanding into potash with a proposed
development in Canada would be a severe strategic misstep and
risked being the next U.S. shale, a business it has urged BHP to
spin off.
"This sounds alarmingly familiar," a spokesman for Elliott
said.
He said the recent appointment of relatively new board member
Ken MacKenzie as the next chairman was an opportunity to set a new
strategy and avoid repeating costly mistakes. "Billions in
shareholder value is at stake," the spokesman said.
Speaking at industry conference in Barcelona in May, BHP Chief
Executive Andrew Mackenzie said management could seek board
approval for the Jansen potash project as early as next June, with
possible first production in 2023.
"We will only develop when the time is right," Mr. Mackenzie
told an audience of industry executives and investors, adding the
company's growth options would firstly focus on value.
A spokesman for the company declined to comment on Elliott's
latest attack.
Elliott has been pushing for sweeping changes at BHP since last
year, and in April went public with its case that called for BHP to
exit its U.S. onshore oil-and-gas operations, which were bought at
the peak of the natural-gas boom, and to collapse a dual
U.K.-Australian structure in order to release billions of dollars
in shareholder value and halt what it says has been a longstanding
underperformance against rival Rio Tinto PLC (RIO) and the broader
equity market. It refined its case in May, urging BHP to launch an
independent review of its global petroleum division, and encouraged
Chairman-elect MacKenzie to address capital allocation and review
the board and executive team.
Although BHP has yet to make a decision on whether to develop a
mining operation at its Jansen project in Saskatchewan, it has laid
the ground work. In its quarterly production update on Wednesday,
it said it was 70% of the way through a US$2.6 billion investment
in excavation and other work and was digging the shaft for a
mine.
Days earlier, BHP published analysis that forecast demand for
potash could double by the late 2040s, by which point it could be a
US$50 billion market. Potash, a nutrient in plant growth, is a key
ingredient in fertilizer, demand for which is expected to rise as
the global population expands and diets become more varied.
Elliott, which manages nearly US$33 billion, is known as an
aggressive activist investor that is willing to chip away at the
companies it targets. The investment firm managed by Paul Singer
has been meeting with other BHP shareholders since it went
public.
Deutsche Bank estimated the Jansen project could cost BHP US$13
billion. In a research report, the investment bank earlier this
month recommended BHP scrap what it said would be a
lower-returning, technically risky project as part of a strategy
revamp under Mr. MacKenzie that should focus on returns.
BHP has proposed developing Jansen in several phases, the first
at a US$4.7 billion incremental capital cost would have the
capacity to product 4 million metric tons of potash a year and
would have an internal rate of return of more than 12%. Broadening
into potash would add a fifth pillar to the company's operations,
which currently focus on iron ore, copper, coal, and oil and
gas.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
July 20, 2017 00:05 ET (04:05 GMT)
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