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Exclusive: Some Australian BHP investors push for external candidate for CEO

Stock MarketsJul 23, 2019 03:44AM ET
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© Reuters. FILE PHOTO: Mackenzie speaks at a round table meeting with journalists in Tokyo

By Melanie Burton

MELBOURNE (Reuters) - At least three institutional investors in Australia are pushing for global miner BHP Group (AX:BHP) (L:BHPB) to consider external candidates to replace Andrew Mackenzie as new CEO, sources with direct knowledge of the matter said.

The move highlights nascent investor pressure on the world's biggest miner to consider drastic changes in management to tackle challenges like cutting costs, an eventual return to lower iron ore prices, and rebuilding its reputation after a Brazil dam disaster.

"We are quite firmly of the view that it needs to be an external candidate ... We just don't see anybody internally that could make a material improvement to the status quo," one of the three institutional investor sources said.

"They pretty much miss every operational target they set, both in terms of costs and volumes, so it's very hard to take new project proposals at face value," the person said. The topic has gained traction in talks in Perth and Sydney in the past few weeks, two other investors said.

Refinitiv data showed the three investors together hold less than a combined 1% stake in BHP, however funds' positions are often held by different entities, so do not always show up in the data, one fund manager said. They all declined to be named due to the sensitivity of the subject.

Mackenzie has been in the job for almost seven years. BHP hired its last external CEO in 1998 when it brought in Paul Anderson to reform the company, which he did by instigating its takeover of Anglo-South African Billiton.

It is not immediately clear whether top BHP investors also share the view that it needs substantial cultural change at the top management to give the miner the reform it needs.

Investors in both BHP and Rio (L:RIO) have been showered with around $15 billion in buybacks and special dividends by each miner since the start of 2018, according to one estimate, largely as a result of asset sales and buoyant iron ore prices.

"The company appears to have momentum on a one to two year view, and during the tenure of the current leadership team. It doesn't look to add up to a pressing need to replace in the short term," a top shareholder said.

Norway's $1 trillion sovereign wealth fund, a major shareholder in BHP Billiton, declined to comment. Activist shareholder Elliott Capital and Blackrock (NYSE:BLK) also declined to comment. A BHP spokesman said it did not comment on speculation.

To be sure, BHP's performance has improved in the past 12 months on the back of a change in chairman and the tailwind from rising iron ore prices that may mean Mackenzie could extend his run. BHP shares are up by a quarter this year and closed up 0.6% on the Australian Securities Exchange on Tuesday.

But it flagged $1 billion in productivity losses for fiscal 2019 in its quarterly production report last week flowing from disruptions to operations across its commodities.

"It is ... felt by investors that there is substantial cultural change that can be effected in order to achieve this and in time it will require a change of management to make this happen," said a second institutional investor source.

They pointed to Nev Power who was instrumental in turning Fortescue Metals (AX:FMG) into the world's fourth-largest - and lowest-cost - iron ore producer in under a decade, or Newcrest's (AX:NCM) Sandeep Biswas as possible candidates.

"Nev is held in high regard for having achieved this through his career," the second source said.

Exclusive: Some Australian BHP investors push for external candidate for CEO

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