BHP Says `Bloody Awful’ Trade Pledges Risk Deflating Trump Pump

2017 Bloomberg L.P

By David Stringer and Danielle Bochove

(Bloomberg) — The head of the world’s biggest mining company intensified his warnings that U.S. trade protectionism under President Donald Trump would threaten global growth and the fight against poverty.

While applauding efforts by the administration to boost U.S. growth and infrastructure spending, BHP Billiton Ltd. Chief Executive Officer Andrew Mackenzie said the consequences of restricting free trade would be “pretty bloody awful.”

BHP, which is also the largest overseas investor in U.S. shale, “is very anxious about the possibility that instead of that good leadership, we could have bad leadership from the U.S. on global free trade,” the Scottish-born executive said in an interview with Bloomberg TV at a conference in Florida Monday.

Global long-term growth is about 3 percent but needs to be 4 percent to get more people out of poverty, he said. “And that won’t happen under a protectionist regime and protectionist leadership in the U.S.”

Mackenzie and Chairman Jacques Nasser met Trump in New York last month, before his inauguration, to discuss the resources sector. Melbourne-based BHP is a partner in Arizona’s Resolution copper project with Rio Tinto Group, which has urged the new administration to accelerate approvals.

Trade-War Scenarios

Mackenzie’s concerns echo those from leaders of the world’s biggest banks, which have warned investors of Trump’s potential to roil markets and slow global trade. Standard Chartered Plc Chief Executive Officer Bill Winters, the former head of JPMorgan Chase & Co.’s investment bank, said last week that he’s mapping out scenarios “if things get very messy and we get into the trade-war zone.”

So far, many investors appear unruffled, driving equity gauges including the Dow Jones Industrial Average to record highs. Stocks have risen as corporate results and European growth figures boosted optimism that the Trump administration will only bolster already-strengthening economies.

Improved demand prospects have also fueled a rally in commodity prices which, in the case of copper, has been supported by supply disruptions in Chile and Indonesia. The red metal is up 28 percent in the past six months.

After years of cutbacks to cope with low prices, the industry is trying to figure out what to do with the windfall, Mackenzie said, and how much should go back to shareholders versus being reinvested to secure future production.

“My sense is that people will be quite reluctant to invest given what’s gone on,” he said. Even so, BHP would make acquisitions for the right kind of ore bodies he said, but “they’re very hard to come by.”

The only deal the company has been able to do of late “for value” was a stake in the Trion offshore oil project, he said. Trion’s development costs may exceed $10 billion with first production expected between 2023 and 2025, Macquarie Group Ltd. analysts wrote Dec. 6. Mackenzie will travel to Mexico to sign the Trion deal on Friday. Asked if BHP will be able to cut the cost of the project or speed up development, he said “we’re certainly going to try.”

Investors remain wary of the prospect of a wave of major deal-making among top miners, after the spree at the start of this decade that led to humbling writedowns and the ouster of a slew of key executives. BHP spent $20 billion expanding into U.S. shale assets and was later forced to write down the value of the assets as prices slumped.

For the full interview with BHP’s CEO, click here

Under Mackenzie’s predecessor, BHP launched an unsuccessful hostile takeover offer for Potash Corp. of Saskatchewan Inc. and previously had failed in an attempted takeover of Rio Tinto Group and a separate plan for an iron ore joint venture with its rival.

On the possibility he’d revisit a large corporate merger, Mackenzie said: “To be honest, I do think about that a bit, but I think that’s very, very low down our list of priorities.”

BHP can achieve its goals with its existing ore bodies and successful exploration, he added.

In the meantime, the company may continue to divest smaller marginal assets, he said, while declining to comment on which ones, or whether any active processes are under way.

“Our portfolio is close to perfection,” he said.

BHP — which focused its portfolio on key commodities with the 2015 de-merger of other assets into South32 — is prioritizing copper, oil and potentially potash for investments or acquisitions, even as iron ore and coal account for almost two-thirds of profits. The copper and petroleum divisions will account for about three-quarters of capital expenditure over the next five years, according to Macquarie Group Ltd. forecasts.

A reduction in capex is “broadly” a sign of the direction the company is headed but it will continue to produce coal and iron ore into the next decade, Mackenzie stressed.

“Ten years from now, who knows, but I don’t think you will see a huge shift from where we are today and we may, by then, have chosen to add potash,” he said.

BHP’s Jansen potash project in Saskatchewan may begin first production from as soon as about 2023, people with knowledge of the plans said in August.

© 2017 Bloomberg L.P