BHP now a benevolent corporate raider

Press, 7 August 1985, Page 35

BHP now a benevolent corporate raider

By AAP correspondent

RUSSELL GRIMMER

PA Melbourne Broken Hill Proprietary, a household name for generations of Australians, is now earning a reputation in the United States as a prudent, but benevolent, corporate raider. Its expansion activities and proposals, particularly in minerals and oil exploration, and its financial bravado, have given the company a profile to be watched closely on world stock markets and the columns of international financial journals. The news last week that BHP is willing to spend up to $7OO million to add another United States oil company to its international portfolio must be causing ripples of interest among the many ailing United States oil companies with good exploration acreage but no money for development. What could be better than to be taken over by the big Australian, have your debt paid off, and be given the financial backing to expand when your competitors are collapsing around you? In January this year, BHP paid SUS 266 ($NZ505.4 million) for a United States oil company, Energy Reserves Group, and immediately bailed the company out of debts totalling SUS23B million. ERG has been renamed BHP Petroleum (Americas).

Its chairman, Mr Clark Mandigo, said the company’s 418 employees regarded the Australian ownership as the best thing that could have happened to the company. “An extremely high level of excitement and enthusiasm pervades the whole organisation, both because of the company’s new found potential for expansion and because of the enhanced career opportunities under BHP ownership," Mr Mandigo said. The elimination by BHP of ERG’s heavy interest payments and the BHP group’s explicitly communicated and reinforced growth objectives were enabling it to pursue a growth strategy when most of its competitors were scaling back, he said. BHP’s development moves in the United States first made international headlines in 1983 when it acquired Utah International from General Electric for $2.4 billion. The move was criticised by shareholders and governments alike because of fears that the big Australian’s operations would suffer. However, BHP entered its centenary year expanding on most local and international fronts. Unlike the ERG acquisition; BHP’s centenary year expansion activities at home, although perhaps commercially necessary,

have not been considered benevolent by all parties. In fact, when BHP joined with Shell to launch a $458 million bid for its North West Shelf partner, Woodside Petroleum, some commentators described the action as a blitzkrieg. Needless to say, the rather outspoken objections of some of Woodside’s minority shareholders had little bearing on the boardroom decisions of the giant Australian where the major concern was Woodside’s ability to set funding in place for the LNG phase of the North West Shelf project. The bid was successful in that BHP and Shell doubled their stake in Woodside, closing the bid with 79.02 per cent of the company’s shares between them. The funding was then put in place and the LNG phase of the $ll billion dollar project gained final approval from the Western Australian Government and the Japanese LNG buyers last week. The Woodside acquisition gave BHP a 23.33 per cent interest in the domestic phase of the project and a 28.33 per cent share in the LNG phase. With the Woodside acquisition out of the way, BHP is now concerning itself with expansion of its limited on-shore Australian exploration acreage. Last week, BHP Petro-

leum’s executive general manager, Mr Russell Fynmore, said this may be done through the acquisition of other Australian oil explorers. He said BHP was unhappy with its level of onshore acreage and was “determined to put the situation right.” “Although discovery of reserves by exploration is usually more cost effective, there are times when the purchase price of discovered reserves becomes attractive,” Mr Fynmore said. “BHP Petroleum will be alert to such opportunities, particularly when production in those reserves could assist in obtaining a tax base to help the group’s exploration investments become more tax effective,” he said. BHP group expansion plans were also confirmed by the company’s general manager, finance, Mr Geoff Heeley. Speaking after the annoucement of BHP’s record $752.59 million net profit for the year to May 31, Mr Heeley said that when opportunities arose BHP would be prepared to undertake additional borrowing for acquisitions. On the same day, BHP’s managing director, Mr Brian Loton, confirmed that BHP was negotiating with a Getty Oil subsidiary, Texaco, about the acquisition of Texaco’s half-interest in the Escondida copper mine in Chile. Mr Loton said BHP, which acquired 50 per cent of the mine through its Utah acquisition, proposed to buy out Texaco’s half-interest with the idea of forming a “consortium of like-minded people” to operate the project. “We would not take up 100 per cent but would definitely recast the whole project by on-selling to selected partners — we have not yet decided on the figure,” Mr Loton said. BHP is on record as saying that Escondida may be the largest known underdeveloped ore body in the the world, with more than 1700 million tonnes of material grading 1.6 per cent copper. In its 1984 annual report, BHP said a planned open pit at Escondida contained an estimated 545 million tonnes of ore Mr Loton also confirmed BHP had facilitated the acquisition of about $l2 million dollars worth of Elders IXL shares during the 1984-85 year,