BHP boss Mike Henry has many options in an uncertain world

OZ Minerals has rejected the offer and has so far refused to work with BHP, which sees significant synergies between its South Australian copper-gold-uranium and Western Australian nickel operations and Oz Minerals’ copper and nickel assets in these regions.

BHP still has scars from its overpriced and ultimately costly US oil acquisition a decade ago. Henry will not be overpaying for access to Oz Minerals’ assets and these synergies.

In a volatile global environment - one where tighter monetary policy threatens global growth - BHP is confident that China will stabilize and support demand for commodities this fiscal year.

In a volatile global environment – one where tighter monetary policy threatens global growth – BHP is confident that China will stabilize and support demand for commodities this fiscal year.Recognition:AP

Even if the bid were successful, BHP would still have plenty of latent balance sheet capacity, even with its conservative gearing targets.

It could use it for higher returns to shareholders through share buybacks or special dividends, or to expand either through mergers and acquisitions or expanding its existing operations. Most likely it will be a mix of everything.

Henry has already signaled that BHP’s capital and exploration expenditures will increase significantly.

In its last fiscal year, it invested $6.1 billion in its existing portfolio. $7.6 billion is expected to be spent this fiscal year. Fiscal 2024 capital and exploration spending is forecast to be $9 billion and beyond to average $10 billion as the group increases its organic growth rate. It is also assembling a portfolio of early stage exploration and development investments focused on copper and nickel deposits.

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The Jansen potash project will be on line by mid-decade, and BHP is already considering accelerating the second, higher-yielding stage of what may be a four-stage project. BHP is also exploring the potential to expand the capacity of its Western Australian iron ore business from 290 million tonnes per year to 330 million tonnes.

Even without M&A activities, there are therefore several potential large and small growth drivers in the group’s pipeline. Jansen is a particularly important portfolio transformation project as it brings diversity to a portfolio that is less diverse following the loss of the group’s oil business and most of its thermal coal assets.

Within the final result, there were some challenges. Operations were impacted by COVID-19-related costs and disruptions, the ramp-up on the south flank, and higher diesel and electricity costs. Unit costs were 13 percent higher across the portfolio.

In WA’s iron ore business, C1 costs (excluding royalties and capital costs) rose from $12.98 per tonne to $15.05 per tonne, but in an inflationary environment, BHP says it’s still the world’s lowest-cost iron ore mine is .

BHP has an underutilized balance sheet and the capacity, if not the need, to deploy it through acquisitions.

The prospect of higher margins for those at the bottom of the cost curve is enhanced in an environment where inflation rates have risen globally and cost curves in their sectors are rising and steepening.

In a volatile global environment – one where tighter monetary policy threatens global growth – BHP is confident that China will stabilize and support demand for commodities this fiscal year.

China’s harsh response to COVID — large-scale lockdowns — and an ongoing and looming housing crisis have dragged its economic growth to near-zero levels this year, despite some modest stimulus measures.

The People’s Bank of China’s unexpected rate cut this week amid worse-than-expected economic data underscores its challenges — and in a critical year for Xi Jinping as he seeks an unprecedented third term as Communist Party leader and China’s president, his likely one Answer . Beijing will do whatever it takes to maintain a certain level of growth.

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The combination of a more focused portfolio of large companies at the bottom of their sector’s cost curve, disciplined capital allocation and a pristine, almost entirely unleveraged balance sheet provides some insurance against China, which is unable to stem the sharp downturn in its economy.

Should China’s demand for commodities actually contract and commodity prices collapse, that financial strength could also offer Henry some counter-cyclical M&A opportunities. It might even propel Oz Minerals into its arms.

https://www.smh.com.au/business/companies/bhp-s-torrents-of-cash-gives-it-lots-of-options-in-an-uncertain-world-20220816-p5ba4p.html?ref=rss&utm_medium=rss&utm_source=rss_business BHP boss Mike Henry has many options in an uncertain world

Brian Lowry

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