BHP Billiton is Strong and Weak at the Same Time

BHP Billiton Ltd [ASX:BHP] fell 0.7% this morning, to $23.81 per share.

What happened?

Over the past week, BHP CEO Andrew Mackenzie has been traveling up and down Collins Street and Martin Place. He’s been talking to fund managers explaining why US activist hedge fund firm Elliott Management has been wrong about the business.

If you haven’t heard, Elliott Management has been pressuring BHP to sell off its petroleum assets and unify its dual British and Australian listing. The activist hedge fund believes it will significantly improve shareholder value.

But while Mackenzie is pumping up the company on the east coast of Australia, BHP is trying to look weak in the west.

The threat of a new tax in Western Australia could see BHP pay 25- or 30-years rent on their iron ore product upfront. So don’t be surprised if you see Mackenzie or other executives tell Western Australians that the company is in no financial position to come up with $2 billion it would need for 30 years’ worth of rent.

What now for BHP?

BHP is adamant about increasing shareholder value. While they disagree with Elliott’s approach, the company plans to improve the value of the group by 50% over time.

To achieve this goal, the company will need to continue to invest in profitable divisions. Yet a large portion of growth will likely come from commodity prices. And if they continue to stay depressed, BHP will be fighting an uphill battle to pump up production for the sake of its profits.


Härje Ronngard,

Junior Analyst, Money Morning

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