A big week for the ASX and BHP that will in one fell swoop lift the importance of the company to the ASX and performance of every major fund manager- especially those that track the ASX 200 and the mining and materials sectors.
If shareholders this week approve BHP’s delisting from London and the consolidation of its primary listing on the ASX (as they will) – returning to the situation that existed before the Billiton takeover two decades ago – BHP’s weighting in the benchmark ASX200 index will rise to around 10% from about 6.2% for the BHP Ltd Australian listing at the moment.
The meetings are due to be held this Thursday, January 20, a day after the company releases its second quarter and December half year production and sales report.
That report will be vital to valuations of BHP which will become more closely watched given its greater dominance of the ASX 200.
The change will cause considerable disruption for a short while as fund managers rebalance their BHP holdings, a situation that has seen index manager S&P Global concede the change would create “material” turbulence on the ASX.
The change will leave BHP with a market value of more than $220 billion after unification, well ahead of the Commonwealth Bank on $175 billion and CSL on $135 billion.
Unification will see many big investors switch their holdings from the old PLC company listed in London, to the Australian listed company and for others to top up their holdings – all with a single day’s trading.
Some local investors – Pendal and Ausbil for example – oppose the deal which will see BHP Plc shareholders receive one BHP Ltd share for every one held, effectively ignoring the discount for London-listed shares have traded at.
At least 75% of BHP’s Australian listed shares will have to be voted in favour of the deal.
UniSuper, a big industry fund, will vote in favour as will long time Melbourne based supporter, Australian Foundation Investment Co, as well as another investor, K2 Asset Management.
Proxy groups ISS Governance and CGI Glass Lewis have recommended their clients vote in favour, meaning the unification (which will cost an estimated $A675 million, according to BHP) will get up on Thursday.
As well, investors will be watching for comments from the company in the report about the outlook for 2022 which is being clouded by the impact of Omicron and an early year surge in iron ore prices because of heavy rain and flooding in Brazil.
Iron ore prices have jumped to more than $US133 a tonne for 62% Fe fines from the Pilbara, from $US120.75 at the end of December thanks to continuing rain and flooding that has shut much of the iron roe mining in the southern state of Minas Gerais (where the 2015 and 2019 dam wall collapses occurred in similar conditions).
The 2015 Samarco collapse is a problem still bedevilling BHP, which owned half the operation with Brazilian miner Vale (which saw an even bigger disaster in January 2019 that forced the company to slash production and sales and eventually contributed to the surge in global prices to record levels last May, helped by strong buying from Chinese steel mills that was abruptly ended by a government crackdown and the slide in Chinese property and construction activity).
The crackdown was driven by attempts to control pollution and carbon emissions ahead of the Glasgow climate change conference in November, rising complaints about smog and then power rationing which in turn added further pressure to Chinese steel production.
That saw the price of 62% Fe fines bottom out at just over $US87 a tonne last November and pries have gradually risen despite more production curbs in China, new outbreaks of Covid delta and omicron as well as the slide in construction and property which is showing no signs of easing.
That 50% rebound in price has happened without the same complaints there was from the Chinese government in April through October at firstly the sharp jump in iron prices and then thermal coal prices which more than doubled to $US300 a tonne and then halved after government intervention.
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Besides BHP’s meetings, this week sees the peak for major mining company exploration, production and sales reports.
Some of the major miners and energy groups are due to release their December quarter, half year or full year figures this week.
As pointed out, BHP’s report will be vital given the unification meetings and for estimates of the company’s interim results for 2021-22.
Rio Tinto also produces its 4th quarter and 2021 (it has a December financial year) on Tuesday.
Oil groups Woodside and Santos are both due to release their full year and 4th quarter figures on Thursday as well (both have calendar financial years).
Revenue and earnings for both are likely to show considerable gains on the Covid weakened 2020, even before their takeovers of BHP Petroleum in the case of Woodside and Oil Search in the case of Santos.
The jobs figures for December will be released on Thursday and will show some impact of Covid omicron on employment but January’s data in a month’s time will be the telling release.
Offshore the US market holiday means new 4th quarter earnings won’t start until Tuesday.
Chinese December quarter GDP is out today and is expected to show a further slowing in annual growth to just 3.6%yoy (from 4.9%yoy in the September quarter).
The AMP’s chief economist, Shane Oliver says this will likely mask an improvement in quarterly growth to 1.2% quarter on quarter (qoq) from 0.2%qoq in the September quarter.
December activity data is likely to show growth remaining subdued with both industrial production and retail sales up just 3.8%yoy but property again dragging.
