BHP to return $10.4bn in cash via buyback and dividend

Published on: November 5, 2018
Author: Editor

BHP has announced plans to buy back $5.2bn of its shares, joining the ranks of major mining groups repurchasing stock.

The plan, announced on Thursday, fulfils a pledge by the Anglo-Australian company to hand back of all the proceeds — after tax and expenses — from the sale of its US shale assets to shareholders. The rest of the cash will be returned to investors via special dividend of $5.2bn, which will be paid in January.

BHP sold its onshore US oil and gas fields to BP and Merit Energy Company in July for a total of $10.8bn, drawing a line under a disastrous foray into the shale industry that sullied its reputation as a responsible steward of capital.

“We made a commitment that all the net proceeds from the disposal of our onshore US assets would be returned to shareholders and we are honouring that commitment now that the sale transactions have been completed,” said BHP’s chief executive Andrew Mackenzie.

Big miners are under pressure from shareholders to boost investor returns, having blown billions of dollars on ambitious projects and dealmaking during the decade-long commodities boom that ended in 2014 with a brutal downturn in prices. Other companies including Glencore, Vale and Rio Tinto have cranked up dividend payments and are also repurchasing shares.

BHP, which has a dual-listed company structure, said its buyback programme would target its Australian shares.

“We believe that the off-market buyback and special dividend programme announced today will return significant value to all our shareholders, allowing the entire BHP global shareholder base to participate, both directly and indirectly, in the shareholder return programme,” said BHP’s chairman Ken MacKenzie.

The decision to buy back its Sydney-listed shares rather than its London-listed shares, means that BHP can take advantage of a system used in Australia to prevent double taxation.

Australian companies can record the tax they pay as franking credits and attach them to dividends or share buybacks. Elliott Advisors, the activist investor that has built a 5 per cent stake in BHP, has called on the company to realise value from its near $12bn pile of franking credits.

BHP says the buyback and special dividend will absorb $3.5bn of franking credits. “BHP has accumulated franking credits that it intends to reduce by targeting the Australian shares,” said Edward Sterck, analyst at BMO Capital Markets.

Even though big miners have slashed debts, reduce costs and boosted returns to investors, their share prices have fallen this year, knocked by concerns about slowing global growth and the US-China trade war.

This has left the sector trading at a big discount to the wider market and on depressed valuations. As a result, leading industry executives such as Glencore’s chief executive Ivan Glasenberg say share buybacks are the best investment their companies can make at present.

Based on current commodity prices large miners are set to generate free cash flow yields ranging from 12 per cent for Rio Tinto and 13 per cent for BHP to 20 per cent for Glencore.

“Although the offshore asset sale and cash returns ‎have been a key driver of BHP’s 2018, there is little to show from this in regards to share price appreciation, with the shares trading inline with levels at the end of 2017,” said Tyler Broda, analyst at RBC Capital Markets. “We see this as further indication that mining companies, BHP included, need to add more growth to drive any re-rating.”

BHP’s London-listed shares rose 2.8 per cent to £16.06 on Friday.

Source: FT.com

Iron Mining