Now that grown-up pragmatists are running BHP and its previous version of Saint Greta Thunberg’s environmental disaster gospel has been heavily revised to accommodate reality, the Big Australian has boomed. A record result and dividend for the (Covid-19-hit) six months to last December along with a realisation that BHP, under new CEO Mike Henry, is once again focussing on being a profit-seeking miner ahead of being an environmental evangelist, has resulted in its share price doubling over the past 12 months to never-before heights of over $50. It has become the biggest company by market capitalisation on the London Stock Exchange. It now looks to a prosperous future not only for its dominant iron ore (70 per cent of its latest profit) but also for its big stake in the fossil fuels it was campaigning against under the old guard. It sees excellent rewards from its $8 billion metallurgical coal assets (while trying to get rid of its now effectively-worthless – and loss-making – energy coal assets after writing off $1.7 billion against them), with coal prices recovering over the past few months as the Chinese bans are offset by selling more to Japan, India and Europe. And Henry also reckons there’s a great future for its multi-billion-dollar punt in Gulf of Mexico oil – another ‘evil’ fossil fuel.
Nevertheless, BHP’s emissions rhetoric is still there (‘we anticipate a [world-wide] concerted effort to confront climate change as a basic imperative’), but now driven more by managerial pragmatism (‘if the world takes actions that limit global warming to 1.5 degrees it is advantageous for our portfolio’) rather than green inner-city Melbourne headquarters environmental purity. So BHP’s emissions reduction approach is now in line with the government’s: Technology, not taxes, to solve the problem – the same song that Visy’s Anthony Pratt is singing as he invests billions of dollars in recycling in Australia and the US.
As CEO Henry told a recent Zoom briefing, ‘BHP believes that [climate change] action has to be focussed on advancing the technological solutions that will allow for decarbonisation of supply chains and the policies that will support those technological advancements to occur… so you see a lot of efforts on our part in those areas to reduce global emissions’. But BHP is more a pragmatist than an ideologue on technological change and will not, unlike its rival Fortescue, set up a ‘green’ steel facility as ‘we do not have the capabilities to build and operate [one] and we do not see the returns as being there certainly in the foreseeable future’. And while believing that, over the long term, some of these technologies – such as hydrogen-based steelmaking – will see penetration into the steel industry, ‘our analysis suggests that blast furnace iron- making, which depends on coke made from metallurgical coal, is unlikely to be displaced at scale by emergent technologies this half century’. As Henry says: ‘We just do not think the economics are there for that to happen in the near to medium term…. From my perspective, that is certainly not a focus for BHP’.
Greenies are far from happy about BHP focussing more on advocacy than spending cash in dealing with overseas emissions from its exports of iron ore and coal. Henry’s ‘ We will work downstream with customers to help them further some of these technologies’, is a mile away from his predecessors’ effective acceptance of responsibility. So the activist investor group Australasian Centre for Corporate Responsibility (which has led repeated climate change shareholder resolutions at BHP annual general meetings) has questioned why BHP is not spending more of its record revenue on green steelmaking technology and the Climate Investment Program.
Henry’s response, that will no doubt result in green fury at the next AGM, was ‘This problem is so big and so complex that I genuinely do not think it is a matter of throwing money at it… [or that] allocating more into that space is actually going to make a difference to the world’. For Henry, it is more about ‘ensuring that BHP’s dollars and technical know-how are applied in the most impactful way possible… to things that we believe are going to make a tangible difference to the world’s ability to meet the climate change challenge…[for example] As one of the world’s biggest bulk-freight charterers, …we have launched the world’s first tender for liquefied natural gas fuelled bulk carriers’.
Nor will the environmental lobby be pleased with Henry’s response to questioning by a security analyst at a post-result Zoom meeting as to whether the planned expenditure of billions of dollars on oil projects was incompatible with BHP’s oft-stated climate goals. ‘We do not see it as incompatible at all.’ sums up BHP’s new pragmatic approach to making a quid. ‘Opportunistic acquisitions that are timed well and countercyclical will remain in scope for us. We have been quite clear that we see oil and gas becoming less attractive over time, but, because we believe demand is going to be resilient for a period of time – in the end oil underpins so many of the processes and products that support life as we know it today and will for some time – we think there is going to be some support for demand. Even if demand is declining, we believe that natural field decline is going to be quicker, and therefore fresh investment in the industry is going to be required to meet that demand, and that will support price fundamentals. Against that backdrop, then, over the course of the next decade we believe the industry will remain attractive for investment’ – whatever the emissions?
And as for getting into renewables, Henry was adamant: ‘We buy most of our power off the grid. For specific circumstances, like the constrained network in the Pilbara for example, we do have some of our own power capacity. I would not say “never”, but it is certainly not going to be a new standalone business for BHP’.
So BHP’s philosophy is no longer in open conflict with government policy. It recognises ‘the obvious tension between the very need to increase production of commodities to make the world more sustainable on the one hand, with the pressures to reduce the emissions footprint associated with resources production on the other…. We are committed to continuing to deliver excellent returns for shareholders and other stakeholders, doing so with an ever-reducing direct sustainability footprint and demonstrating leadership through investment in the technological solutions and policy advocacy required to actually decarbonise the supply chain…. Not only is it the right thing to do, it preserves and grows long-term value for shareholders and society’.
Activist greenies will not like BHP’s adjusting its principles to enhance its profitability – but to shareholders, like me, it is a welcome change.
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