By Rhiannon Hoyle
ADELAIDE, Australia-- BHP Billiton Ltd. sought to reassure
investors of its commitment to boosting cash returns even amid
tumbling commodity prices, as shareholders who have endured years
of heavy investments in new projects demand higher paybacks from
the world's No. 1 mining company.
Still, at BHP's annual general meeting here, Chief Executive
Andrew Mackenzie knocked hopes of a near-term share buyback--a move
that many investors want to be a key part of its capital-management
strategy.
Resources companies world-wide, including BHP and
Anglo-Australian rival Rio Tinto PLC, have taken to shedding
unwanted assets and driving downs costs to strengthen their balance
sheets, in a bid to entice investors with the promise of higher
returns at the tail-end of a decadelong mining-investment boom.
BHP said it was meanwhile charging ahead with a spinoff of
businesses, including aluminum and manganese operations, into a new
company that could be worth as much as US$18 billion. It hopes the
demerger will enable it to focus on large, profitable operations
like copper and petroleum.
"Everything we're doing, including productivity accelerated by
the demerger, is aimed at increasing cash returns to you, our
shareholders," Mr. Mackenzie told investors at the AGM on Thursday.
The company said it would hold an extraordinary general meeting in
May so that shareholders could vote on the demerger plan.
Mr. Mackenzie said a buyback of shares wasn't the top priority
for his management team right now. Speaking to reporters later, he
said the key focus was to keep the company's balance sheet
strong--which included maintaining what he described as its solid A
credit rating in the face of the recent downturn in commodity
prices.
"Then we look after what we think is a strong dividend, then we
selectively invest in what we have for growth, and only then if we
can see excess cash might we consider that," Mr. Mackenzie added.
"People can debate that, but our priorities are in that order."
BHP said it had already returned US$64 billion to investors
through dividends and buybacks over the past decade, although it
had disappointed investors in August when it failed to outline
plans to repurchase stock. UBS said recently that it didn't expect
any such buyback until at least the middle of next year given the
steep commodity-price falls. Iron ore, which accounts for around
half of BHP's earnings, has plunged by close to 50% this year.
Other analysts are even more pessimistic on the chances of an
imminent buyback. "Without commodity prices going higher than
expected, BHP is likely to underwhelm from a capital returns
perspective," Christopher LaFemina, an equity analyst at U.S.
brokerage Jefferies, said last month.
Global commodity markets have been roiled by a rising U.S.
dollar and concern China's economy is cooling faster than
anticipated. The world's No. 2 economy has been losing
momentum--with growth in investment, factory production, exports
and retail sales all slowing in October. The economy grew by 7.3%
year-over-year in the third quarter, the slowest pace in more than
five years.
Mr. Mackenzie said BHP continued to make a decent profit despite
the weaker prices. "Our company is ready for this. We have a very
strong strategy of productivity, which allows us to effectively
follow this price down and look after its profitability," he told
reporters.
Still, Mr. Mackenzie said he couldn't predict exactly what BHP
would do with any spare cash in a fast-moving industry where
commodity prices were so volatile. He said decisions would have to
be made "in real time."
BHP isn't the only mining company promising to boost returns to
investors. Last month, Rio Tinto told shareholders that the slump
in iron-ore prices wouldn't stop the company giving more cash back
to investors starting from next year.
In August, Glencore PLC said it would buy back US$1 billion of
its own shares, and signaled that it was prioritizing cash returns
to shareholders over any major new investments. The
Switzerland-based resources company said it was able to do so
partly because of the US$7 billion it received from selling the Las
Bambas copper mine in Peru.
BHP's chairman, Jac Nasser, said the Melbourne-based company had
made good progress in recent weeks toward plans for the demerger,
which included getting regulatory approval from Australia's
foreign-investment regulator.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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