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BHP’s new chief signals shift of focus to low-carbon economy

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Via Financial Times

The new chief executive of BHP said he wanted to expand in the commodities that would be needed in the shift to a low-carbon economy and was prepared to sell its thermal coal assets at the right price.

Presenting his first set of results since taking the helm of the Anglo-Australian company at the turn of the year, Mike Henry said that while BHP had a lot of potash, a crop fertiliser, it needed more options in “future facing” metals.

“We need more copper and we need more nickel,” Mr Henry told reporters. “We do have some growth ahead of us in both of those commodities but if I think to the far future we’d like to have more options.”

Most of the world’s biggest mining companies are looking for opportunities to grow in copper, which is used in wind turbines, and nickel, a key raw material in the batteries that power electric vehicles. However, large, high-grade deposits that are easy to mine are becoming more difficult to find.

At the moment BHP’s biggest business is producing iron ore. It also mines coking coal, another key steelmaking ingredient, and produces oil.

Mr Henry said that his “strong preference” was to grow in ‘future facing’ metals through exploration and partnerships with junior mining companies rather than acquisitions.

“Having seen the pain of acquisitions at the wrong point in the cycle or [for] assets that were already mature, I don’t want us to be there,” Mr Henry said, in an apparent reference to BHP’s ill-fated foray into the US shale industry.

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Turning to thermal coal, Mr Henry said it was a very small part of the company’s portfolio and “if somebody presented the opportunity for us to exit for value we would consider that”, Thermal coal is burnt in power stations to generate electricity. BHP has mines in Australian and Colombia.

He was speaking after BHP reported a 39 per cent jump in high year profits as it cashed in on high prices for iron ore.

In the six months to the end of December, BHP recorded underlying net profit after tax — the measure most closely tracked by analysts — of $5.2bn on revenue of $23bn.

Net debt rose 21 per cent to $8.3bn, as BHP was forced to adopt new accounting rules on leases.

The company declared an interim dividend of 65 cents a share — its second highest payment on record — however, this was lower than the 71 cents expected by analysts.

“Operationally [the result were] in line with market, but dividend below expectations,” said analysts at UBS.

BHP said the dividend payout, which at 63 per cent of underlying earnings was 12 percentage points lower than a year ago, reflected concerns over the impact of the deadly coronavirus outbreak on global growth and its focus on reducing net debt.

BHP said it expected the global economy to grow between 3.0 and 3.5 per cent this year but warned it would have to revise that forecast downward if coronavirus was “not demonstrably well contained” by the end of March. That would also weigh on its estimates for commodity demand growth.

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Asked about his vision for BHP, Mr Henry, who previously ran the company’s Australian assets, including its flagship Australian iron ore business, said his focus was on “unleashing the full potential” of the company.

Under Mr Henry’s predecessor Andrew Mackenzie BHP slimmed down, spinning off a group of non-core assets into a new company and selling its lossmaking US shale oil business.

It also attempted to take an industry lead on climate change, announcing plans last year to set public goals for “Scope 3 emissions”, which include those produced by its customers, such as large steel mills in China.

Mr Henry said an update would be provided on the goals later in the year.

Analysts say Mr Henry has three big strategic decisions to make — the future of the company’s oil assets, whether to exit thermal coal and if BHP should build a giant potash mine in Canada.

During Monday’s results presentation, Peter Beaven, who lost the race for the top job to Mr Henry, moved to clear up speculation on his future, saying that he was still “happy” at BHP.

“This is the place I need to be,” the chief financial officer said. “And I am looking forward to playing whatever role I can.”

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