BHP to exit fossil fuel business in sweeping overhaul

London

BHP Group unveiled the most sweeping change to its business since the world's biggest miner was created two decades ago, as it plans an escape away from fossil fuels to shift towards what it calls "future facing" commodities and clears up some longstanding questions facing investors.

BHP will sell its oil and gas operations to Woodside Petroleum in exchange for shares that it will distribute to its own investors, it announced on Tuesday. The company also approved US$5.7 billion of spending to build a massive new fertiliser mine in Canada and said it will unify its dual-listed structure and shift to a single primary listing in Australia. The shares in London jumped as much as 10 per cent after the flurry of announcements.

The decisions - which come alongside record free cash flow for the year through June and a US$10.1 billion final dividend - represent a pivotal moment for chief executive officer Mike Henry, who took the helm in January last year. Investors have been waiting for years for a decision on the Jansen mine, while the company has said previously its dual listing was up for discussion after coming under pressure from activist investor Elliott Management Corp, which also pushed for an exit from oil and gas.

Since his appointment, Mr Henry has been seeking to focus the company towards metals and minerals that will benefit from global efforts to reduce emissions, electrify cities and feed a growing global population. A Canadian-born executive who joined BHP in 2003 from Mitsubishi Corp, he inherited a business that had been stripped down and simplified under his predecessor, who sold out of shale and spun off unwanted assets, but still faced huge decisions on potash, the listing and the future of fossil fuels.

"These are sweeping changes," said Ben Davis, an analyst at Liberum Capital. "The new, improved, not so-boring BHP." The change to the listing structure means "they can be more nimble in the future", he said.

"It's not just change today, but it means there's more change coming tomorrow."

The dual listing dates back to 2001, following Australia-listed BHP's merger with UK-listed Billiton, and had seen the companies managed and run as a single entity with shareholders having equal economic and voting rights. Mr Elliott argued in 2018 that a reorganisation into a single company in Australia would add more than US$22 billion in value to shareholders.

BHP generates the bulk of its profits from iron ore and copper - a metal that's central to the green energy transition - and benefited from soaring prices for both commodities over the past year.

The commodities giant is getting out of oil and gas as the fossil fuels industry grapples with global pressure from investors and governments over climate action, prompting some larger oil rivals to shrink their core production and add renewable energy assets.

BHP has also finally approved the first stage of construction of the Jansen potash mine in Saskatchewan, Canada, after years of wavering over the huge price tag. The operation, expected to start production in 2027, will make it one of the world's top producers of the crop nutrient. BLOOMBERG