Woodside, BHP shareholders both left counting losses as ESG agenda shows its growing might

Any doubts investors might have had about the power of environment, social and governance (ESG) issues to dictate corporate decision making were blown away this week when BHP caved into activist pressure to quit the oil and gas business.
19th August 2021
Tim Treadgold

The deal, which will see Woodside Petroleum acquire BHP Petroleum, has not been well received on financial markets, with both companies sold down and some big BHP shareholders indicating they will oppose the transaction when put to a vote next year.

But whether BHP and Woodside achieve their desired marriage of convenience is not the big issue for investors. The more important point is that ESG considerations have now been elevated to a company-making (and breaking) level.

Over time, the BHP/Woodside transaction might produce a better result on the stock market but looked at today, it’s hard to find a winner. BHP shares fell by 9% in the days after the deal was revealed. Woodside is down 8%.

It’s a rare corporate event that produces no winners, though bankers and lawyers are undoubtedly happy with the result. Shame the owners of BHP and Woodside, the shareholders, are poorer for the experience, so far.

If some good is to come from the Woodside/BHP transaction it is the way it has encouraged Woodside to proceed with the Scarborough gas project and for BHP to make a final investment commitment to the Jansen potash project in Canada.

However, long before Scarborough or Jansen generate profits, investors might be wondering what’s the point of being a shareholder in a business which is more concerned about being seen as a good ESG citizen rather than generating a return for the owners.

BHP is certainly not alone in focusing more on ESG than earnings, with yesterday’s profit announcement from Evolution Mining another interesting example. A record profit was mentioned in the opening paragraph while the top issue in the next section, FY21 Group Highlights, was topped by a “public commitment to transition to net zero greenhouse gas emissions by 2050”.

Less pollution is an admirable aim but surely not the highlight of the financial year. That has to have been the net profit of $345.3 million and 12c a share dividend, a strong result which lifted Evolution’s share price over the week by 13c to $4.06.

Jansen, which is BHP’s next big move into future facing commodities (joining copper and nickel), will be a 100-year project with first potash expected to reach customers in about five years, but it is already having an effect on smaller players in the fertiliser business.

Most of Australia’s “mosquito fleet” of potash hopefuls lost ground after BHP’s Jansen commitment. Kalium Lakes fell by 5c to 18c. Highfield was steady at 52c (but is down 10c over the past month) and BCI Minerals was 6.5c weaker at 47c.

Battery metals maintained their momentum as news of rapidly rising demand for electric vehicles pushed up prices for lithium, nickel and cobalt.

Locally, the big battery metals news was a move by Independence Group on fellow nickel producer, Western Areas.

The merger, if consummated will sit comfortably with the lithium interests of Independence which have already made it a popular battery metals investment choice.

On the market, Western Areas added 15c over the week to $2.79. Independence fell by $1.01 to $8.90 – another example of buy the target in a takeover situation and sell the bidder.

In other nickel news, Poseidon reported more encouraging assays from drilling at its Golden Swan project in WA, including an eye-catching 14.3% nickel over 0.8m from a depth of 178.85m. On the market, Poseidon was steady at 12c but is up 3c over the past month.

Lithium continued to excite bank analysts and investors as sales of electric vehicles continued to rise rapidly. Macquarie Bank said that European and Chinese sales of EVs in the month of June exceeded 200,000 units in both markets, accounting for 15% of all European vehicle transactions and 19% of the Chinese market.

Strong EV sales flowed into fresh lithium price forecasts, with Macquarie tipping an all-time high for the metal (in its spodumene form) of $US1350 a tonne in the next six-to-12 months, with the price helped up by the lack of a significant supply response from miners.

Macquarie’s view echoes a similar report a week earlier from J.P. Morgan which raised its lithium price forecast.

Despite the optimism about future metal prices, most lithium stocks weakened over the week. Pilbara was down 25c to $2.08, perhaps weighed by a big share issue to finalise its acquisition of Altura Mining. Liontown slipped 3.5c to 92c but earned a buy tip from Bell Potter. which upgraded its price target for the stock to $1.33.

Iron ore continued its overdue fade with the price for high-grade material dipping to $US158.50 a tonne, which means it has now dropped by 32% from its all-time high of $US233/t in May.

Mineral Resources was the biggest loser this week, plunging $9.22 (15.3%) to $51.32. Fortescue Metals also fell sharply, down $1.24 to $20.21 while royalty specialist Deterra was off 42c to $4.15.

A small iron ore winner was Venture Minerals which added 1.5c to 9.8c yesterday (Thursday) after announcing it had booked a ship to carry its first 46,000 tonne cargo from the Riley mine in Tasmania.

Gold had a strong start to the week, continuing last week’s recovery, but faded towards the close with the net result being a gain of $US9 an ounce to $US1780/oz – taking the increase over the past two weeks to $US57/oz – and while that looks encouraging the metal is $US120/oz below its June peak of $US1902/oz.

Excellent profit results from Evolution (mentioned earlier) and Newcrest (profit up 80% to $1.2 billion) underpinned gold stocks, though the overall performance of the sector was mixed.

Little known Torque Metals reported encouraging drill results from its Paris project which is well located east of Higginsville and south of the big St Ives gold camp in WA. The stock added 3.4c this week to 24c after a best hit of 9m at 11.5g/t from 63m.

Other gold news included a 2m intersection at 82.7g/t by West African Resources, which slipped 3c to $1.03 but earned a buy tip from Macquarie which sees the stock rising to $1.15, and Alkane, which eased by 4c to 99c despite reporting encouraging gold assays of up to 2.94g/t over a 31m section starting at the surface.

Other news events and market moves, mainly down, included:

  • OZ Minerals, down a hefty $1.45 over the week to $21.46 despite a solid $269 million profit and green light for the Prominent Hill underground development. A drop in the copper price to a level last seen in April ($US4.08 a pound weighed on the stock. Macquarie reckons it can recover to $30, but Credit Suisse sees $20.35 as the next stop.
  • King Island Scheelite said it had paid a deposit on long lead time items for its Dolphin tungsten project on King Island off Tasmania, a move which saw the stock slip 2.5c lower to 17c.
  • Sovereign Metals expanded the footprint of its promising Nsaru rutile project in Malawi with a number of encouraging drill results which included 11m at 1.29% rutile close to the surface. On the market Sovereign eased back by 4.5c to 54c.
  • Horizon Minerals updated the feasibility study into its Richmond/Julia Creek vanadium project in Queensland but slipped 1c lower on the market to 11c.
  • Australian Mines traded down by 0.2c to 2.3c despite singing an offtake deal with the Korean company LG Energy for the supply of nickel/cobalt hydroxide from its Sconi project in Queensland, and
  • Calidus said it had started mining at its Warrawoona gold project in WA, but slipped 1c on the market to 47c.








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