SYDNEY BHP Billiton's biggest shareholder, BlackRock Inc (BLK.N), on Wednesday called on the mining giant to reward shareholders with a share buyback whether or not its $39 billion bid for Potash Corp (POT.TO) succeeds.
BHP Billiton (BHP.AX)(BLT.L), which last bought back its own shares in 2007 was finding it hard to spend its mountain of cash after two failed swipes at rival Rio Tinto (RIO.AX) (RIO.L) -- once for the entire company and then a merger of the iron ore divisions, building the case for a return of capital, Evy Hambro, BlackRock's resources-division chief, told Reuters.
BlackRock, the world's largest money manager, holds about 10 percent of BHP's shares.
"It is hard for them (BHP) to redeploy their money," Hambro said.
"What is available to them is their own shares," he said. "It would make a lot sense for them to start buying back their own shares, which are trading at low multiples by historic standards."
Analysts expect BHP to post profits of around $20 billion for the year to June 2011, up from $12.5 billion last year.
BHP's hostile cash offer for Potash Corp is being resisted by Potash's board and the provincial Canadian government of Saskatchewan, which estimates a BHP takeover would result in the loss of C$3-$C6 billion in royalties over 10 years.
Potash's board thinks the offer is too cheap.
But even if BHP acquired Potash, that should not mean a buyback was off the table.
"The (BHP) balance sheet has the flexibility to do both," Hambro said.
"The company is in such a strong position with such a small amount of debt on the balance sheet that if they do buy Potash... relative to the gearing they might take on, it still leaves them with a very conservative balance sheet.
BHP's net debt was $3.3 billion with a net gearing of 6 percent as of June 30.
Hambro said BHP was emitting signs it was getting ready to buy back shares, but he could not say how many or at what price.
"I think they've hinted to the market they do plan to do that (a buyback).
"We would never want the company not to reinvest in its own business nor manage its balance sheet. Those two priorities come ahead of that.. But with surplus cash beyond that, then we would look for them to start returning capital." Hambro said he views the Potash bid as an extension of BHP's push into the fertilizer sector following its earlier smaller acquisitions of potash exploration companies in Canada.
He said he did not see this as an attempt by BHP to buffer itself against a downturn in industrial commodities markets, which are on an upward cycle.
(Editing by Ed Davies)