Published: Thu, May 18, 2017
Markets | By Lucia Cruz

Elliott Responds To BHP's Approach

Elliott Responds To BHP's Approach

The company was for decades known simply by its acronym, although only changed its name formally to BHP Ltd. a year before the 2001 merger with Billiton PLC when it combined names and adopted a dual London- and Sydney-listed structure.

Its preference would be a full or partial demerger of the business, but it said the next step is for BHP to launch an in-depth independent review of the petroleum operations and to report its findings.

But Elliott still says BHP is a chronic underperformer and must spin off its USA oil business and adopt a consistent plan of buying back shares.

"We realised we had to start by telling people what BHP Billiton is and what we do", said the group's chief external affairs officer, Geoff Healy.

On its website, fixingbhp.com, Elliott also criticised BHP's track record on share buybacks and suggested the company make a $6 billion buyback in 2018.

It ratcheted up the pressure on BHP management on Tuesday, sending a letter to the board calling on the world's biggest mining company to conduct an independent review of its oil unit.

The head of the Melbourne-based firm, which only yesterday announced a $10 million rebranding campaign that will see it become simply "BHP", assured investors he could lift the value of the company - the world's largest miner - by up to 50% and nearly double its return on capital in the coming years. "Our path is deliberate, with value and returns at the centre of everything we do", Mackenzie said.

BHP had no immediate comment on the latest proposal.

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Mackenzie outlined BHP's plans, which he argues could lift the value of the company by 50% and double its return on capital.

He said BHP now has major growth projects valued at up to US$25bn, offering potential average returns of more than 16% at consensus prices.

Asked whether shale oil and gas would stay in the portfolio, Mackenzie in a webcast reply said he could not give a simple yes or no answer.

All options to realise the value of BHP's shale acreage, including further appraisal, new technology, asset sales and swaps will also be pursued, he said.

Studies on the Olympic Dam expansion "are progressing well".

The Petroleum exploration program has an unrisked value of over $20 billion, with close to one-fourth being in low to medium risk prospects to be tested in the next two years. Earlier today it called for a review of the petroleum business. On Tuesday Elliott responded to BHP's "do nothing" approach since its April appeal to management and directors.

BHP Billiton plc (LON:BLT) traded up 0.71% during trading on Tuesday, reaching GBX 1199.00.

Macquarie analyst Hayden Bairstow said the increased rig numbers would not deliver production growth immediately, but he said oil production from the shale assets would begin growing in fiscal 2019.

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