BHP Group Limited
BHP Details
Unification of BHP: BHP Group Limited (ASX: BHP) is a global producer of commodities such as copper, uranium, copper refinery, precious metals, etc. BHP operates copper, petroleum, coal, and iron ore segments. On 2 December 2021, BHP declared its proposal to unify BHP Group Limited BHP Group Plc into one under BHP Group Limited.
Proposal Highlights:
- Value to Shareholder: Each BHP Group Plc shareholder will be entitled to receive one (1) BHP Group Limited share for each BHP Group Plc share held via a UK scheme of arrangement wherein BHP Group Limited will purchase 100% shares in BHP Group Plc. The unification will be subject to the UK court, and shareholder approval, plus other necessary approvals.
- Strategic Advantages: Unification will lead to a simpler & efficient corporate structure, avoid duplication of governance, improve flexibility to reshape portfolio, and lead to a significant reduction in costs. It would also help simplify the ongoing merger transaction between BHP’s Petroleum business and Woodside Petroleum Limited (WPL).
- Single Global Share Price: Post-unification, BHP will be traded in different exchanges (the ASX, LSE, and JSE). The share trading between exchanges is interchangeable and there would be no material differences in the respective share prices on each exchange. Shareholders in different jurisdiction will get dividends in their respective currencies. Investors will continue to vote on shareholder resolutions and participation in AGMs.
- Elimination of the Current Dividend Arrangements: Currently, BHP Group Limited pays dividends and franking credits (FC) to BHP Group Plc. After the unification, BHP Group Limited would become the single parent company and the FC balance would be directly given on dividends to the larger shareholder base of the BHP Group Limited.
- Increased Demand for Shares: BHP Group Limited’s shares on ASX are estimated to increase by ~72% as ~2.1 billion of BHP Group Plc shares will be transferred for BHP Group Limited shares leading to an increased weighting in the S&P/ASX 200 index. The delisting from the UK exchange and the expected increase in weighting in S&P/ASX indices in the near term might lead to increased trading in BHP shares.
- The total transaction costs related to the unification are estimated to be within ~US$350 - US$450 million (pre-tax).
- A Prospectus and a shareholder circular are expected to be released on or around 8 December 2021 with detailed information on the BHP Group Limited shares, the proposed UK scheme of the arrangement, and repot from an independent expert.
Q1FY22 Results:
- BHP reported an increase in the total petroleum production by ~3% YoY to 28 MMboe in Q1FY22.
- The metallurgical coal production declined ~9% YoY to 8,850 Kt and energy coal increased by ~17% YoY to 4,238 Kt in Q1FY22.
- The company is advancing well on its major projects under development - Shenzi North development (petroleum), Jansen Stage 1 (potash) in the US Gulf of Mexico, and Mad Dog Phase 2 (petroleum).
Net Income Highlights; (Analysis by Kalkine Group)
Key Risks: The company faces commodity price changes, exploration risks, COVID-19 uncertainty, and acquisition risk.
Outlook:
- A general meeting of BHP Group Limited is expected to happen on 20 January 2022 (Melbourne time). A general meeting and a scheme meeting of BHP Group Plc are anticipated to happen in London on 20 January 2022 (UK time).
- The proposed unification is planned to be completed by 31 January 2022.
- The WPL and BHP merger is expected to be completed in Q2CY22.
- BHP has accelerated its copper exploration efforts in Peru, Chile, Ecuador, Mexico, the US, and Australia. The company is targeting early-stage investment/ development options and organic growth from its existing operating assets.
- BHP expects to produce ~99 and 106 MMboe petroleum, ~249 – 259 Mt iron ore, and ~39 - 44 Mt energy coal in FY22.
Stock Details: The stock of BHP gave a positive return of ~11.93% in the past month and a negative return of ~5.00% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $35.560 - $54.550. Given the ongoing unification of the dual listed corporate structure, ongoing merger of BHP Petroleum business with WPL, and the acquisition of Norton business, we suggest investors keep a close watch on the developments. The stock of BHP closed at of $40.230, up by ~1.309% as of 3 December 2021.
BHP Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings
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