Breakingviews

BHP falls into cash-burning Ring of Fire

3 minute read

A line of electric vehicles (EV) used at Nutrien's Cory potash mine are seen near Saskatoon, Saskatchewan, Canada August 12, 2019. REUTERS/Nayan Sthankiya

MELBOURNE, July 28 (Reuters Breakingviews) - BHP (BHP.AX), (BHPB.L) boss Mike Henry is making his own point. He’s avoiding major acquisitions read more in “future facing commodities” such as copper and nickel because of surging commodity prices. Instead, the miner will take a chance on smaller explorer Noront Resources, which has a big claim on Canada’s captivating but undeveloped Ring of Fire.

At just C$325 million ($258 million), its proposed deal is hardly indicative of a wild shopping spree. Yet $184 billion BHP is offering a 69% premium to where the shares closed on Monday and 129% more than the price in May before mining magnate Andrew Forrest’s Wyloo Metals unveiled an unsolicited offer. Henry could wind up in a bidding war. Sceptical shareholders erased some $3 billion from BHP’s market value.

The sizeable investments required to build roads or rail to reach Noront’s promised deposits have held up development. Projects are further complicated by negotiations with local First Nations. It seems all BHP’s options for new supplies will come at a steep price for the foreseeable future. (By Jeffrey Goldfarb)

On Twitter http://twitter.com/breakingviews

Capital Calls - More concise insights on global finance:

Dueling grill makers serve their IPOs rare read more

Singapore’s GIC looks for lab rat liquidity read more

Just Eat Takeaway’s activist has a full plate read more

Duolingo IPO valuation doesn’t translate read more

SoftBank tries to turn dog into unicorn read more

Editing by Antony Currie and Katrina Hamlin

Breakingviews
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

More from Reuters