BHP is aiming to maximise shareholder value through continuing to diversify its portfolio and adapt to “the changing world”, according to its long-term strategy.
The plans were announced by chief financial officer (CFO) Peter Beaven, revealing BHP was satisfied with its portfolio for the near to medium term and was shifting its focus to the future.
“The world will be a very different place in 10 to 20 years’ time… the changing world including demand sources, the supply environment, required capabilities, and societal expectations – both challenges and excites us,” he said.
Beaven highlighted that a portfolio of diversified commodities would reduce the company’s exposure to price volatility, market concentration and the risk of end use market disruption.
“Over a 20-year period, when compared to a standalone portfolio of only Western Australia Iron Ore, our diversification reduces cash flow volatility by around 30 per cent,” he said
“We believe that diversified portfolios enable better capital allocation, all companies have excess capital at the tops of cycles, but single commodity companies can have less access to capital at bottoms of cycles.”
BHP has also looked into commodity demand in the future to identify trends in its external environment.
Beaven said the company was able to make assumptions about demand with “a degree of conviction”, while admitting that there is significant uncertainty regarding exactly how the world will change.
“Adding options in copper and nickel sulphides (as opposed to laterites) are likely to be a sound investment- demand will grow and, at the same time, new supply sources will be hard to discover and permit, and will be more expensive to develop,” he said.
“While demand for batteries will drive lithium and, to a lesser extent, cobalt demand, we also believe that abundant supply of the former, and substitution of the latter, reduces the attractiveness of these commodities for us.”
BHP was also expecting steel production growth to remain marginal due to increased recycling and long-term slower growth in infrastructure.
Beaven also backed the company’s focus on iron ore and metallurgical coal assets given their low cost, saying they “continue to offer attractive margins and returns.”
While BHP has existing options in copper and oil, he emphasised the company “need more” and “are interested in adding more nickel sulphide resource to [their] portfolio.”
Beaven concluded the strategy presentation by outlining BHP’s focus “well beyond the next decade, so [it] can continue to grow cash returns to shareholders and be even more successful in the long term.”