DBRS Morningstar Confirms BHP Group Limited & BHP Group plc at “A” with a Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating of BHP Group Limited & BHP Group plc (collectively, BHP or the Company) at “A” with a Stable trend. The rating confirmation was a result of the Company’s sound business and financial risk profile. Despite the sale of its U.S. onshore petroleum portfolio in October 2018, BHP remains the largest mining company in the world by market capitalization and assets and has an attractive portfolio of long-life, low-cost operations that should provide attractive cash flow over the next few years at forecast commodity prices. Further, BHP’s operating and financial results in F2019 remain supportive of the current rating.

BHP continues to make progress on its environmental, social and governance initiatives, including (1) announcing four new renewable power agreements for its Escondida and Spence copper operations beginning in 2021 with a target of achieving 100% renewable supply by the mid-2020s, (2) ramping up the second de-salination plant at the Escondida mine as part of becoming 100% water self-sufficient at its Chilean copper operations by 2030, (3) creating its $400 million Climate Investment Program to develop technologies for de-carbonization at both its own operations and the Scope 3 emissions of its customers and (4) tendering for low-emission liquified natural gas–powered bulk freight carriers for up to 10% of its iron ore production. Finally, BHP and Vale S.A. (rated BBB (low) with a Stable trend by DBRS Morningstar) have received the licence to restart their Samarco operations at approximately one-third of nameplate capacity pending the construction of a filtration plant that will allow for 80% of the tailings to be dry-stacked. The partners had previously decided to accelerate the decommissioning of the upstream tailings dams at the Germano dam complex at Samarco following legislative changes in Brazil in response to the Brumadinho tailings dam failure in January 2019 (please refer to the DBRS Morningstar commentary “Impact of Investor Mining and Tailings Safety Initiative on the Mining Industry” dated August 13, 2019, for additional details).

DBRS Morningstar views BHP’s liquidity as strong, with $15.6 billion in cash and $6.0 billion in availability under the Company’s credit facility as at the end of F2019. This should be more than sufficient to repay the EUR 600 million of Notes due in F2020 as well as fund any cash flow deficits and, potentially, allow for further debt tenders. DBRS Morningstar does not expect a positive rating action in the medium term based on BHP’s current business risk profile and current financial forecasts. However, DBRS Morningstar estimates that, among other things, either a 30% decline below current consensus forecasts or the purchase of non-accretive assets could warrant a negative rating action.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Mining Industry (August 2019) and DBRS Morningstar Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (November 2019), which can be found on dbrs.com under Methodologies & Criteria.

This rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the rating process for this rating action. DBRS Morningstar did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is an unsolicited credit rating.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada