BHP chief pledges ‘disciplined’ M&A stance despite bulging war chest

The chief executive of BHP has signalled that the world’s biggest mining company will resist the temptation to go on an acquisition spree despite a growing war chest.

Mike Henry told the Financial Times that “we want to be quite disciplined” and that the company would look to exploration, organic growth and higher productivity to raise its output.

BHP’s unsolicited A$8.4bn bid for OZ Minerals in August was swiftly rejected by shareholders, fuelling speculation it might come back to the table with a more generous offer.

However, Henry said BHP would be restrained about which M&A opportunities to pursue.

“OZ is a nice-to-have, it is not a must-have for BHP,” he said at the FT’s Mining Summit. “We have these other levers of productivity, organic growth, exploration and early-stage entry that gives us the freedom to be quite choiceful about the M&A opportunities we will pursue.”

BHP, which draws most of its revenue from iron ore and coking coal, has been on the hunt for growth with a focus on potash, copper and the nickel used in electric vehicle batteries.

OZ completed a feasibility process to kick-start the development of its remote A$1.7bn nickel and copper mine in Western Australia last month. The project will open up a new frontier for Australian nickel production, and its viability could provide more comfort for bidders including BHP in establishing OZ’s value.

Bumper profits last year mean BHP has a sizeable war chest at its disposal, should it choose to pursue acquisitions. However, its shareholders also expect a lot of that cash to be given back to them. The company returned $16.5bn to investors during its past fiscal year.

The mining company has also consolidated its Australian and British share structure — a move analysts say will make significant acquisitions easier to complete — and has split off its oil and gas operations via a merger with Woodside that completed earlier this year.

Henry said he was cautiously optimistic on the outlook for China, the world’s largest consumer of commodities.

China delayed the release of its third-quarter economic data this week, adding to concerns about a slowdown that has been compounded by Covid lockdowns.

“Our view is that China is still going to provide a bit of stability or underpinning to global economic growth over the next 12 months. We are seeing some green shoots in China,” said Henry, pointing to increased property sales and completions.

Steel production in China was likely to be just over 1bn tonnes this year, he added, 1-2 per cent lower than in 2021.

In an update this week, BHP maintained its production and cost guidance for the year as a strong performance in iron ore and nickel helped offset lower volumes in copper and coal, which were hit by wet weather in Australia and labour shortages.

Rival Rio Tinto, which also mines iron ore in the Pilbara region of Western Australia, warned this week that recessionary fears in the US and Europe and the struggling Chinese housing market would damp demand for commodities.