Miner BHP Billiton's shares spike on hedge fund manager's move

James Marshall
April 17, 2017

BHP Billiton is being targeted for an overhaul by sometimes-activist Elliott Management Corp, which is urging the world's biggest mining company to spin off about US$22bil of United States oil assets, improve capital returns and unify its corporate structure.

Saunders said he did support the idea of selling BHP's onshore US oil assets, but that while the approach from Elliott would spur management to reassess their strategy, the hedge fund was unlikely to be able to force its plan through.

"Costs and associated risks of Elliott's proposal would significantly outweigh any potential benefits", responded BHP.

Elliott said BHP is expected to generate $31bn of excess cashflow in the next five years, but it has previously used excess cash to make "value-destructive" acquisitions.

"The goal is to provide details of the BHP shareholder value unlock plan to all of BHP's shareholders, so that BHP can engage openly with all parties on the plan to unlock shareholder value", Elliott said in the letter.

Under its existing structure, BHP consists of two companies: BHP Billiton Limited, listed in Sydney, and BHP Billiton plc, listed in London. Its investors include pension plans, sovereign wealth funds and hospitals, among others, it said. They now have $35.00 price objective on the mining company's stock. It also suggested changes to BHP's corporate structure.

It has previously said a London vehicle offers its better access to global capital markets.

The big question though is whether the share price rise is sustainable, or if Elliott Management's restructure call will be politely ignored by the management team at BHP.

A spinoff of USA oil assets would contradict the producer's recent focus on growth in that division, he said. BHP Billiton plc has a 1-year low of $22.37 and a 1-year high of $37.44.

BHP Billiton has rejected a proposal from Elliott Associates, LP and Elliott International, LP (Elliott), which includes splitting off its oil business. The creation of Perth-based South32 reduced BHP's portfolio from about 40 operations to 19 core assets.

"I think BHP has probably been asked 10 times in the last 15 or 17 years to unwind the (dual-corporate structure)", the fund manager said.

Elliott, which manages more than $32.7bn in global assets, advised BHP to bring its British entity under the control of its Australian arm.

Moreover, BHP Billiton has posted more than seven-fold jump in the profit in the fiscal first half as commodity prices surged and it cut costs and debt.

"BHP Billiton's approach is to optimise the long term value of the petroleum business through operating excellence". BHP's USA oil-and-gas assets in Texas, Louisiana, Arkansas and the Gulf of Mexico - acquired in 2011 - account for roughly 20% of profits, and are valued at roughly $22 billion. The Firm is a producer of various commodities, including iron ore, metallurgical coal, copper and uranium.

Republican Singer's stance towards the party's current leadership has meandered in recent months with the Elliott Management founder's initial vocal rejection of President Donald Trump replaced with an apparent wholesale change in attitude, accompanied by a visit to the White House which was gleefully seized upon and trumpeted by the president. In February, BHP approved its $2.2 billion share of spending on the Mad Dog Phase 2 oil project. The Iron Ore segment is engaged in mining of iron ore.

Other reports by Click Lancashire

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