What's going on?
Shares in BHP Billiton – the world’s second largest mining company – rose by 2% on Wednesday as it received multiple bids for its US shale operation, potentially valuing it at more than $10 billion.
What does this mean?
Producing shale gas in the US (think: oil drilling, but for natural gas) is hot right now – hitting its highest production levels ever in 2017. The rising price of oil makes products like fuel more costly for consumers – and alternative energy sources look more attractive to companies.
BHP spent $20 billion to get into the shale market in 2011. However, some of its activist investors think it’s been a bad move (tweet this)– they estimate total investments have been way higher and yielded no profit – and have been encouraging BHP to cut its losses and sell the business.
Why should I care?
For markets: A bidding war might kick off.
Some investors think BHP’s shale business would be better off in the hands of oil and gas titans like BP, Chevron or Shell – all of which have bid for the business, perhaps hoping to get ahead of customers’ shifting energy demands. However, with a second round of bidding likely later this year, investors in these oil companies will be hoping the eventual buyer doesn’t overpay.
The bigger picture: Mining helps Australia’s economy to grow.
Australia’s first-quarter economic growth was better than expected – expanding by over 3% vs. the same time last year. Australia’s a hub for mining companies and their activity over the period helped this new growth – which, in turn, helps companies like BHP and Rio Tinto. Their customers may need more metals to make products in response to rising demand, pushing their values higher (a.k.a. inflation). As the prices of things like copper rise, mining companies make more profit when they sell on their wares.