Uranium: a $30b bonus for BHP - Business - Business - smh.com.au
THE BHP Billiton juggernaut has picked up further pace, with its Olympic Dam mine set to secure more than $30 billion in long-term uranium sales to China and strong demand prompting a $750 million increase in the size of its share buyback to $2.25 billion.
The new momentum carried the company - and the rest of the market - to record levels yesterday. The dual-listed company is now truly the colossus of the global mining industry, with its Australian and London-listed shares worth a combined $175 billion, up $45 billion on its starting point for the year.
The main factors in yesterday's spurt to record levels for BHP - its shares closed 90c or 3.2 per cent higher at $28.90 - were the signing of a uranium safeguards agreement with China, clearing the way for the first exports of Australian uranium, and the need for investors who sold into the enlarged buyback to rebuild their positions.
Helping things along was Chinese Premier Wen Jiabao's comments that markets and not governments should decide iron ore prices, removing earlier fears that China would choke the iron ore boom by capping prices. The big iron producers, BHP and Rio Tinto, are seeking another substantial price increase to follow on from last year's bonanza 71.5 per cent price increase.
BHP's Olympic Dam operation, the world's biggest uranium deposit and the sixth biggest copper deposit, is considered the best positioned to meet China's demand for as much as 10,000 tonnes a year of uranium from Australian sources. That amount would match Olympic Dam's capacity once a $5 billion to $10 billion expansion is completed in 2010-11.
A 25-year supply contract at current spot prices for that amount of uranium would be worth more than $30 billion. More importantly for BHP, it would also provide a home for the uranium that comes with Olympic Dam's mainstay metal - its copper output.
BHP's time frame to expand Olympic Dam fits with Chinese and Australian expectations for the first uranium sales to China. Federal Resources Minister Ian Macfarlane said yesterday that there was unlikely to be sufficient extra production to sell to China before the end of the decade. "In terms of any significant quantity, we are probably looking at some time past 2010," he said.
Meanwhile, BHP said that "very strong demand" meant it would have to scale back acceptances to its buyback even though it had added $750 million to the $1.5 billion target.
The buyback was part of the previously announced $US2 billion ($3.5 billion) capital management program to deal with the flood of cash into the company's coffers from record commodity prices and record production levels.
The buyback was set at $23.45 a share - a hefty 14 per cent discount to the average price of the locally listed BHP shares in the five trading days before the buyback; $21.35 of the buyback price is treated for Australian tax purposes as a fully franked dividend.
BHP felt the need to defend itself from criticism in some quarters that buybacks unfairly benefited super funds and other low tax-paying shareholders.
It said the discount to market price of the buyback "ensures the buyback is in the best interests of BHP and all of its shareholders, regardless of their location, tax status or participation in the buyback".
BHP's recently installed chief financial officer, Alex Vanselow, said the buyback had provided the optimal means for maximising economic value for all shareholders. "Shareholders in both BHP Billiton Ltd and BHP Billiton plc will benefit from the enhanced value of the remaining shares through the increased earnings, cash flow and return on equity attributable to each share," he said.
Despite the 63.47 per cent scale-back, shareholders who tendered at the maximum 14 per cent discount will have at least 200 shares bought back.
Tuesday, April 04, 2006
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