BHP Billiton eyeing acquisitions as it considers dividend cut
BHP Billiton is stepping up its hunt for acquisitions or new projects, hoping to take advantage of distressed prices at a low point in the commodity cycle and increasing the likelihood that the world’s most valuable mining company will make a dividend cut next year.
BHP is determined not to miss a chance to buy choice assets if rival miners are forced into sales as they try to survive the worst commodities downturn in a decade. The Anglo-Australian miner is looking for copper and deepwater oil projects.
But BHP is acutely aware of potential stresses on its own balance sheet, and particularly its pledge to maintain a strong credit rating, if it were to strike deals.
As a result the group is moving closer to ending its policy of maintaining or increasing its dividend, which has been in place at BHP for more than 25 years, long before it merged with Billiton and became the world’s largest miner by market capitalisation.
A number of the world’s largest miners including Glencore, Freeport-McMoRan and Anglo American have already suspended dividend payments as they try to survive the downturn.
A cut in BHP’s annual payout, which cost the miner $6.6bn in its last financial year, could be announced in February. It would provide more flexibility to buy mines from rivals or advance some of the projects on its books, according to people familiar with the company’s thinking.
BHP could look to buy assets from rivals or increase its stake in joint ventures. For example, bankers say it could make sense for BHP to try to increase its stake in Antamina, a large Peru copper mine.
Antamina’s other investors include Glencore and Teck, which are under financial pressure. Ivan Glasenberg, chief executive of Glencore, has said he has received offers for some of his group’s prime assets.
BHP has clung to the progressive dividend policy but has started to signal that its balance sheet is more of a priority. Jac Nasser, chairman, described the dividend last month as “a solid signpost as to what expectations should be”. But he also said: “The first principle is a strong balance sheet.”
Many investors also think that maintaining the progressive dividend would be a mistake when commodity prices have plummeted.
Moody’s fired a warning shot last week when it said BHP could face a rating downgrade if it did not act to counter weak commodity prices. “Moody’s will be reviewing the company’s ability to further reduce operating costs and capital expenditures, as well as its ability and willingness to reduce its ongoing dividends,” the credit rating agency said.
Miners have significantly scaled back their capital spending plans as the commodities environment has deteriorated. But Andrew Mackenzie, chief executive of BHP, has also said investment in projects could make sense at this point in the commodity cycle, when people and equipment can be hired for a fraction of the costs that prevailed during an inflationary mining boom.
“We can actually invest in some fairly impressive growth for a lot less money than we previously thought was necessary, perhaps as much as 50 per cent less,” Mr Mackenzie said in November.