From next Monday, BHP will be reincarnated as a wholly Australian company after 21 years of divided loyalties between the ASX and the London Stock Exchange.
Shares representing 42% of its issued capital will relocate to Australia, taking the mining company from just over 6% of the ASX 200 to about 10%. BHP will dominate its home sharemarket like no other company does in a major economy around the world.
With an already jittery sharemarket — there are nerves about tomorrow’s December quarter Consumer Price Index and the two-day meeting of the US Federal Reserve — BHP’s pending relocation will make for volatility. As a bonus, there are only four trading days this week.
BHP’s market cap could end up between $220 billion and $250 billion and it will be a must-buy for fund managers who rely on market indices to generate returns; they will have to rebalance their portfolios to adjust to its dominance of the ASX 200. It also means greater exposure to mining and especially iron ore for the Australian sharemarket and investors — which includes all of us via our superannuation funds.
Mathew Hodge, Morningstar Australia and New Zealand’s director of equity research, says the shift means “in terms of the increased exposure of the [S&P/ASX 200 index] to commodities, in round terms, we’re maybe looking at about 2% more exposure to iron ore, and about 1% more exposure to coking [i.e. metallurgical] coal and about 1% more to copper”.
The company has changed significantly in recent years. Once synonymous with tax dodging and transfer pricing via its Singapore marketing hub, BHP ended up coughing up well over $600 million in unpaid taxes after its attempt to game the system was knocked back by the High Court.
In 2017-18 it finally dumped its disastrous US shale gas venture. It also came under pressure from activist investment group Elliott Management to restructure its listing and sell assets, and in 2017 saw the rare situation of a BHP director leaving the board in the shape of former Origin Energy boss, Business Council head and Coalition favourite Grant King (who now, bizarrely, heads Prime Minister Scott Morrison’s Climate Change Authority) after a shareholder revolt.
By coincidence or not, with King out, BHP has moved with increasing speed down a greener path. It is eager to sell its thermal coal assets and has shifted its oil and gas assets off balance sheet to Australia’s greatest climate criminal, Woodside. It has pursued key renewables metals in copper and nickel: seven years ago it was a seller of its Nickel West business in WA and couldn’t get a buyer, so it decided to upgrade its mines, smelter and refinery. By 2017-2018 the business had become a core operation.
BHP doesn’t have to worry too much about a denialist Australian government that wants to prop up fossil fuels — it is almost entirely an export business, with very little domestic focus. But unlike Fortescue’s Andrew Forrest, it has declined to embrace green hydrogen, arguing that the technology is too far from maturity and until the bulk of the electricity grid is decarbonised, renewable-sourced energy shouldn’t be used for expensive developmental technologies.
Its growing focus on renewables has made BHP an increasing destination for global investors of all sizes looking for ESG (environmental, social and governance) investment opportunities, as well as Australia’s big super funds, which wield enormous capital which has helped make Australia a net global investor.
And once settled back in Australia, the company will have the capacity for a major global scale acquisition of a rival miner.
BHP’s unification could have implications for those who are getting exposure to the Australian equity market through exchange traded funds or ETFs, which are increasing favoured by investors because they are easy to buy and provide a low-cost way to add diversification to investment portfolios.
Over the past five years, the growth rate of Australian ETFs has averaged almost 40% a year. One of the most popular types are those that track the Australian sharemarket, particularly those that track the S&P/ASX 200 and S&P/ASX 300. Those indexes will also be skewed by BHP’s rise in market cap once the unification happens.
BHP is about to play a significantly bigger role in most Australians’ financial lives and their retirements through their superannuation plans.
It could very well be a case of what’s good for BHP — if it’s well-managed — is good for millions of Australians and their retirements.
It could very well be a case of what’s good for BHP — if it’s well-managed — is good for millions of Australians and their retirements.
If it’s well managed. Can behemoths be well managed? Big corporations tend to be more bureaucratic than government departments. BHP also misses a lot of opportunity because the opportunities need to be suitably behemoth.
Perhaps the BHP group (of smaller, more agile companies able to capitalise on the many smaller opportunities, especially in the mining sector) might be more workable.
To paraphrase Milo Minderbender – “What’s good for BHP…”
As an international company, BHP would be able to produce cheaper green hydrogen using nuclear electricity elsewhere than here with intermittent solar. However, the EU has recently categorised gas – fossil gas – as sustainable. With this new label, superannuation funds and other ethical investors will be misled into funding gas projects despite such fossil gas emissions being unsustainable in our atmosphere.
Making “reformed” hydrogen from natural gas is a well-established, highly dollar-efficient process. How the fossil carbon industry managed to pervert the EU’s ESG process deserves scrutiny. Its triumph stands to undermine Andrew Forrest’s attempts to convert the world to green hydrogen.
ever heard of Brown’s gas. Did you ever see the VHS video of the american dude who designed an electrolysis unit to break down water into oxygen, hydrogen and browns gas with enough hydrogen output to drive a 4 cylinder car using a AA battery as the electrolysis power unit. He patented the hydrogen injector and the electrolysis unit. It was stainless steel. There was a lot of neutral plates between the anode and cathode to reduce amp requirements. Guy died of radiation poisoning which was strange since there was no radiation around his home or town. His brother still fights for justice. Patents gone from patent office. Never happened. Fortunately i was one of the many few who learnt about it. Photocopied his plans and notes and that disappeared too. I have seen a similar unit on youtube recently. Uses an 18650 battery.
Reminds me of early SBS show about designs, inventions lost or bought up and never used commercially.
One is that East Germany had design for light globe that basically would last forever.
The other was about the invention of nylon stockings.
Can’t recall the chemical company, but scientists had tweaked the chemical to produce stockings that would also last a very long time. They were told to redesign, in order to produce stockings that lasted almost no time at all. Monsanto? Not certain, but some USA company.
Can’t have products that last “forever” bad for business. Built in obsolescence necessary for All products being made nowadays. Stuff the energy consumption or emissions.
Where would our planet’s everestless piling mountains of refuse and garbage (not to mention business/commercial profits) be, without standard inbuilt planned obsolescense?
You can also see on youtube, the redneck engineers who prevaporise fuel before it goes into the carburettor. Increases mileage by a factor of 6. We are so being played.
There’s a lot of “would” in that assertion. Nuclear electricity cheaper than solar isn’t a true situation anywhere. For producing a product like hydrogen, it’s continuity is no kind of advantage either: production is a load that can trivially be tailored to the intermittent nature of the power source. No need to even add storage, unless it pays for itself through the increasedd use-factor of the production plant. It’s not as though shipping the final product overseas (in actual ships) is anything other than intermittent.
@Andrew Reilly. 100% solar hydrogen is inherently expensive, because all of the equipment has to continue paying the banker for the rest of each day. Similarly, its LH2 storage has to be big enough to supply customers not just for the rest of the day, but across cloudy weather as well. (Yes it would be a happy dream if the plant could supply an entire shipload as it is generated during the day, then the next ship docks during the night, ready for the next day’s production.)
BHP is making a sensible, economic decision in delaying production of fossil-free hydrogen “until the bulk of the electricity grid is decarbonised”. With the grid as non-fossil backup, they could produce liquid hydrogen on demand. A fully decarbonised grid almost certainly has to include nuclear, if only to turn the intermittent renewable power into reliable, non-fossil on-demand supply.
Yeah, gotta make provision for those days when the sun don’t blow & the wind don’t shine, just another version of the baseload obfuscation.
The banker is happy if his loans are repaid according to the schedule: monthly or whatever. Ships full of gas depart when they’re full, not daily. When the sun is up the cost of production from solar is zero, irrespective of how brightly the sun is shining and how much power is being consumed. 100% solar hydrogen is inherently about five to ten times less expensive than nuclear hydrogen (wild guess, based on how much more expensive nuclear is in every other application context).
BHP is run by some bright people, but their size makes them somewhat conservative. You say that they could produce liquid hydrogen on demand, but where is the demand for that? People want their liquid hydrogen on well-defined long-term regular delivery purchase arrangements. It is inherently store-able (that’s the whole point of using it). There is no such thing as “on-demand” supply.
Intermittent power supply doesn’t matter at all when delivery is by ship, inherently intermittent (at longer time scales) itself.