From next Monday, BHP will be reincarnated as a wholly Australian company after 21 years of divided loyalties between the ASX and the London Stock Exchange.
Shares representing 42% of its issued capital will relocate to Australia, taking the mining company from just over 6% of the ASX 200 to about 10%. BHP will dominate its home sharemarket like no other company does in a major economy around the world.
With an already jittery sharemarket — there are nerves about tomorrow’s December quarter Consumer Price Index and the two-day meeting of the US Federal Reserve — BHP’s pending relocation will make for volatility. As a bonus, there are only four trading days this week.
BHP’s market cap could end up between $220 billion and $250 billion and it will be a must-buy for fund managers who rely on market indices to generate returns; they will have to rebalance their portfolios to adjust to its dominance of the ASX 200. It also means greater exposure to mining and especially iron ore for the Australian sharemarket and investors — which includes all of us via our superannuation funds.
Mathew Hodge, Morningstar Australia and New Zealand’s director of equity research, says the shift means “in terms of the increased exposure of the [S&P/ASX 200 index] to commodities, in round terms, we’re maybe looking at about 2% more exposure to iron ore, and about 1% more exposure to coking [i.e. metallurgical] coal and about 1% more to copper”.
The company has changed significantly in recent years. Once synonymous with tax dodging and transfer pricing via its Singapore marketing hub, BHP ended up coughing up well over $600 million in unpaid taxes after its attempt to game the system was knocked back by the High Court.
In 2017-18 it finally dumped its disastrous US shale gas venture. It also came under pressure from activist investment group Elliott Management to restructure its listing and sell assets, and in 2017 saw the rare situation of a BHP director leaving the board in the shape of former Origin Energy boss, Business Council head and Coalition favourite Grant King (who now, bizarrely, heads Prime Minister Scott Morrison’s Climate Change Authority) after a shareholder revolt.
By coincidence or not, with King out, BHP has moved with increasing speed down a greener path. It is eager to sell its thermal coal assets and has shifted its oil and gas assets off balance sheet to Australia’s greatest climate criminal, Woodside. It has pursued key renewables metals in copper and nickel: seven years ago it was a seller of its Nickel West business in WA and couldn’t get a buyer, so it decided to upgrade its mines, smelter and refinery. By 2017-2018 the business had become a core operation.
BHP doesn’t have to worry too much about a denialist Australian government that wants to prop up fossil fuels — it is almost entirely an export business, with very little domestic focus. But unlike Fortescue’s Andrew Forrest, it has declined to embrace green hydrogen, arguing that the technology is too far from maturity and until the bulk of the electricity grid is decarbonised, renewable-sourced energy shouldn’t be used for expensive developmental technologies.
Its growing focus on renewables has made BHP an increasing destination for global investors of all sizes looking for ESG (environmental, social and governance) investment opportunities, as well as Australia’s big super funds, which wield enormous capital which has helped make Australia a net global investor.
And once settled back in Australia, the company will have the capacity for a major global scale acquisition of a rival miner.
BHP’s unification could have implications for those who are getting exposure to the Australian equity market through exchange traded funds or ETFs, which are increasing favoured by investors because they are easy to buy and provide a low-cost way to add diversification to investment portfolios.
Over the past five years, the growth rate of Australian ETFs has averaged almost 40% a year. One of the most popular types are those that track the Australian sharemarket, particularly those that track the S&P/ASX 200 and S&P/ASX 300. Those indexes will also be skewed by BHP’s rise in market cap once the unification happens.
BHP is about to play a significantly bigger role in most Australians’ financial lives and their retirements through their superannuation plans.
It could very well be a case of what’s good for BHP — if it’s well-managed — is good for millions of Australians and their retirements.
