BHP Billiton: 25th Anniversary Special
How did shareholders fare 25 years on ... and what's next?
It’s become the consensus view of late that BHP shareholders were shafted in the merger with Billiton in June 2001.
Many will point to the 10-13% premium BHP paid for Billiton … or the fact that BHP would eventually sell most of Billiton’s assets in the S32 demerger as proof that it was a bad (or even pointless) deal for BHP.
Some will even characterise the merger as corporate “terrorism”, with a common argument being Billiton management and shareholders got an outsized reward for their contribution to the merger.
In my view, these sort of takes are like pointing out a spec of dust on the Sistine Chapel … overlooking the fact that a BHP shareholder experienced a 10.1x growth in their investment since June 29 2001, representing 9.7% compounded annual growth.
If you can compound my money 10x by shovelling dirt out of the ground, you can hijack me straight to the bank.
But how did BHP compare against other diversified miners that were listed 25 years ago?
BHP clears the pack easily, although Rio seems to be finally getting its act together - no doubt boosted by both strengthened copper and aluminium pricing in 2025/26.
It would be interesting to see an alternative TSR universe where Rio wasn’t levered to the hilt after purchasing Alcan. They are still paying for that equity raising in 2009 to this day!
Compared to US and Australian stock market indices, BHP’s total shareholder returns have also stacked up pretty well.
Although it’s interesting to note that the S&P 500 would have finally caught up to BHP, if not for the copper rally in 2025/6. Go AI! 🤡
Bit of a side note - but in sourcing historical stock prices for this analysis, I came to the realisation that the historical quotes on sites like Google or Yahoo Finance are a little bit misleading (or wrong). These sites and data providers do a lot of black magic and adjust historical prices for not just share splits (which is good) but ALSO dividends (which is bad). Historical prices are automatically adjusted DOWN ex-dividend. This makes disaggregating returns from capital growth and dividends hard to do - and makes a clean TSR calculation almost impossible.
BHP’s portfolio transformation
So how has the portfolio of BHP transformed since 2001?
First, it got bigger and broader - partly through the new assets that Billiton brought in (aluminium, manganese, nickel, thermal coal in NSW / South Africa, and some copper development projects), but also through the organic development of the now famous Pilbara iron ore province and BHP’s met coal assets in Queensland.
WAIO is the obvious ramp-up: from 59Mt in 2000 to 230Mt in 2015. But what's often missed is how much BHP's Petroleum business grew alongside it: 118,605 kboe in 2000 to 255,680 in 2015.
Then came some spring cleaning following weakness in the aluminium sector and a general commodity price slump in 2014-2016.
South32 demerged many of Billiton's assets in 2015, Woodside took petroleum in 2022, and met coal has been steadily wound down from the early 2020s. BMC went to Stanmore in 2021, Blackwater and Daunia to Whitehaven in 2024, and Saraji South was recently shut. BHP's 50% share of BMA now produces just 18Mt of met coal compared to 34Mt in 2015.
What’s fascinating is that BHP has managed to shrink to greatness and generate MORE with less. EBITDA is a tad lower than FY 2010, but EBITDA normalised by copper equivalent production has actually increased.
This is not a new strategy for BHP - they have always been banging on about only being involved in the largest, low-cost, and expandable Tier-1 assets (I almost sound like a BHP IR representative). It can just sometimes take years or decades to get the chess pieces in place to realise your strategy.
In fact, that very focus on portfolio mix and commodity diversification is what I’ve really liked about BHP.
From the start of the merger, Billiton ran BHP like a financial portfolio. BHBP didnt see a collection of mines - but a spread of commodity exposures that they could manage and optimise for risk and return.
The 2001 strategy briefing had some boomer graphics, but the message was clean: the combined portfolio was less risky than either standalone company. 19% cashflow at risk for the combined portfolio, versus 26% and 25% for Billiton and BHP respectively.
Critics aren't wrong that a lot of Billiton's assets were culled through the S32 demerger. But apart from the fact that Billiton brought in some elite development projects in both Spence and Antamina (which funny enough came from Billiton’s acquisition of Rio Algom which itself was a Canadian spin-off from Rio Tinto), it also brought in a wealth of new management and talent that helped transform BHP into the company we see today.
Take iron ore. Marius Kloppers, then marketing chief and later CEO, took on how the whole commodity was sold.
Ever since the seaborne iron ore market exist - miners and steel mills would meet every year to agree a price. Very much a B2B transaction. In the early 2000s BHP led the push to scrap this process for a more frequent pricing mechanism linked to an index. The whole industry benefited (Rio Tinto included), with iron ore still being priced that way today. Iron ore used to be sold for $30/t in the early 2000s, and now sells at $90+.
A good primer on the intangible side of the Billiton transformation is The Big Fella. A highly recommended read and great corporate drama!
In closing
Having done a bit of work for BHP in the past, I have a lot of respect for the company.
Some people in the industry might have a few complaints about BHP: too process heavy, too centralised, won't sweat every last dollar out of an asset, a tad woke.
But at the end of the day, BHP is the absolute chad of the industry and by a mile the best blue-chip diversified miner to recommend.
So what bodes next for BHP?
Apart from a likely coal divestment, continued growth in copper, and expansion into Potash through Jansen - I expect their strategy to remain the same.
Just compare the covers of two reports 25 years apart.
Not much has changed.
BHP take my money haha will beat Us and Aus indices. Great article mate, Marius Kloppers move to price iron ore at market rates is one of the greatest value creation moves for the mining industry, especially for Australia. Now that Chinese demand is softening we’ll see what’s next. As you and I know copper is a speculative move, stock prices are nonsense. I wonder how much of BHP’s share price has that baked in. I also read somewhere on substack (pity I forgot the article) that there is copper inventory surplus in the USA after Trump announced tariffs. So either demand is for stockpiling or demand is fictitious AI demand. Anyway another rant for another day haha love your work sir is it exceedingly esteemed.