BHP BHP Group Limited

By Rhiannon Hoyle 

SYDNEY -- BHP Billiton Ltd. said it would hand $10.4 billion to shareholders via a stock buyback and special dividend, as the miner continues to face a campaign against its strategy and structure by activist investor Elliott Management Corp.

The capital return was outlined by BHP, the world's biggest mining company by market value, within hours of completing the sale of most of its U.S. onshore shale division to BP PLC. The sale of the oil and gas fields was among the demands of Elliott, a U.S. hedge fund founded by Paul Singer, and ends a costly saga that left the company roughly $20 billion worse off.

BHP's Australia-listed shares surged on news of the buyback and dividend, rising around 5% after touching a near six-month low in late October as the mining sector felt the heat from the global equities selloff. Analysts said the stock gains reflected an earlier payout to shareholders than many in the market had expected.

Like many of its competitors in the global resources industry, BHP had used cash generated during earlier booms in commodity prices to buy assets or invest in expanding its mining operations from Australia to North America. It paid a combined $20 billion to acquire U.S. shale assets in 2011, and then spent billions more to explore and develop them.

But a collapse in energy prices resulted in massive impairment charges, including a more than $7 billion pretax charge in 2016 that is its largest-ever single write-down. Miners including BHP and Rio Tinto PLC have adopted a conservative strategy since then, even as commodity prices recover.

Frictions between BHP's management and Elliott look likely to continue as several other key demands by the activist investor remain unmet. Elliott, which disclosed a sizable stake in the company in April 2017 and immediately sought sweeping changes, wants BHP to collapse a structure that sees its shares trade in London and Sydney in favor of a single Australia-incorporated company.

Elliott says its plan would create some $22 billion in value for shareholders. BHP disagrees with that assessment, and has so far rejected the move as too costly without bringing enough benefit.

"I acknowledge there are some ways in which you can do the numbers where the upside prize looks quite large," but other scenarios suggest it would be a very risky move, Chief Executive Andrew Mackenzie said earlier this year.

Elliott, which controls about 5% of BHP's London stock, wasn't immediately available to comment on the capital-return plan, which will only include a $5.2 billion buyback of Australian stock only.

Under Australian tax laws, BHP can purchase shares off-market at a discount of up to 14%, which increases its appeal when London shares are trading at a discount of lesser value. London listed shares were on Wednesday worth about 12% less than Australia-listed ones.

"We believe that the off-market buyback and special dividend program announced today will return significant value to all our shareholders, allowing the entire BHP global shareholder base to participate, both directly and indirectly, in the shareholder return program," BHP Chairman Ken MacKenzie said.

The buyback will start immediately and be completed before the end of the year. BHP said it will also pay a special dividend to shareholders totaling $5.2 billion, adding that it would bring the total cash handed back to shareholders over the past two years to $21 billion.

Still, some investors question whether mining companies are retaining enough cash for future growth, for fear they may be too late to take advantage of the next big upswing in prices. The world's top diversified miners are now spending less than half what they spent on projects six years ago.

BHP said it retains enough cash to keep investing, with $8 billion set aside for projects annually. In recent months the company bought a roughly 11% stake in copper explorer SolGold PLC, which is developing the Cascabel copper and gold project in Ecuador.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

(END) Dow Jones Newswires

October 31, 2018 21:47 ET (01:47 GMT)

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