BHP on track for $13b asset sale with a little help from Trump tax cut

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BHP on track for $13b asset sale with a little help from Trump tax cut

By Darren Gray

Higher oil prices, Donald Trump's corporate tax cut and positive results from recent well trials have helped generate a “supportive” environment for BHP’s sale of its onshore US shale assets, says BHP chief executive Andrew Mackenzie.

Speaking at the Bank of America Merrill Lynch Global Metals, Mining and Steel conference in Florida, Mr Mackenzie said BHP had made good progress with its plan to exit the US onshore business.

BHP boss Andrew Mackenzie.

BHP boss Andrew Mackenzie.Credit: AAP

“The sale process is on track. All data rooms are open, bids are due in the coming weeks and we hope to announce the sales by the end of this calendar year,” he said.

Striking a less positive note, Rio Tinto chief executive officer Jean-Sebastien Jacques told the same conference that "resource nationalism" was a significant issue facing the mining industry.

"From the DRC (Democratic Republic of Congo) and South Africa to Mongolia and Australia … it is gaining momentum. As a result, the case for investment and FDI (foreign direct investment) is clearly under threat," he said.

Mr Jacques said the creation of “the United Nations of the mining industry” would help tackle the challenge of resource nationalism.

"There is no doubt in my mind that going forward we need to spread the risk. And in some very challenging jurisdictions we will have to build the United Nations of the mining business," he said.

This was a reference to potentially involving multiple resources companies and even institutions like the World Bank in key projects in challenging jurisdictions.

In addition to resource nationalism, Mr Jacques said trade wars and volatility in markets were significant risks. But he stressed that the outlook for global growth was positive.

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Shortly after Mr Mackenzie spoke, respected resources analyst Glyn Lawcock, from UBS, said the rising oil price would work in BHP's favour with its plan to exit the US onshore shale assets.

"When it was announced (last year), I'd say the market was probably $US6-8 billion. I'd say now with what's happened the market's probably at least $US8-10 billion.

"And obviously the longer the oil price stays up clearly the more the market is going to expect," he said.

The sale process is on track. All data rooms are open, bids are due in the coming weeks.

BHP boss Andrew Mackenzie

BHP pleased investors in August 2017 at the release of its fiscal 2017 results, when it unveiled plans to exit the US onshore shale business. Estimates that BHP could get about $US10 billion ($13.4 billion) for the assets have raised expectations among investors about what it will do with the money.

Mr Lawcock said "the market expects it (the money) to come back", and he could envisage BHP using the funds to return cash to shareholders via a combination of dividends and share buybacks.

Mr Mackenzie said parting with the US onshore shale assets had the potential to lift BHP’s return on capital employed by three per cent, “with minimal impact to free cash flow”.

Meanwhile, a potential headache emerged for BHP on Wednesday when a law firm said it was preparing to launch a shareholder class action against it, in relation to the Samarco dam disaster in Brazil. A tailings dam collapsed in Brazil in 2015 at a joint venture project of the miner Vale and BHP, leading to the death of 19 people and vast damage to communities.

Brett Spiegel, from law firm Phi Finney McDonald, said the proposed action would allege BHP breached its continuous disclosure obligations and engaged in misleading or deceptive conduct.

“There are strong grounds to allege that from at least 21 October 2013, BHP failed to ensure that appropriate safety measures were in place at the Fundão dam, including a proper system to warn people living downstream of the dam in the event of a dam failure," he said.

The class action would seek to recover losses to shareholders incurred between 5 November 2015 and 30 November 2015, when BHP's share price dropped in the wake of the incident, the legal firm said in a statement.

BHP declined to comment on the legal move.

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