A credit rating downgrade could be on the horizon for the Big Australian, according to ratings agency S&P.
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August has been a painful month for the BHP Group Ltd (ASX: BHP) share price, following a sharp 16% selloff last week.
BHP shares have managed to edge 1.3% higher from Friday’s close, finishing Tuesday’s session at $44.92.
The Australian Financial Review (AFR) reported concerns that BHP will be less diversified following its divestment of oil and gas assets, with S&P Global threatening to downgrade the miner’s credit rating to a record low.
Oil divestment might not be a good thing after all
The AFR looks back at BHP’s history of “shedding assets and reducing the number of commodities it produces … having quit businesses such as diamonds, manganese, alumina and aluminium over that period while formulating plans to exit oil, gas, thermal coal and some of its coking coal mines”.
In a post-divestment world, BHP’s production portfolio will comprise copper, iron ore, metallurgical coal, energy coal and nickel.
More recently, BHP approved a US$5.7 billion investment in the Jansen Stage 1 potash project, aligned with its strategy of growing exposure to future-facing commodities in world class assets.
According to the company’s FY21 results, it said that this investment would provide “increased leverage to key global mega-trends including rising population, changing diets, decarbonisation and improving environmental stewardship”.
The Jansen Stage 1 project is expected to begin production in the 2027 calendar year, followed by a ramp up period of two years.
The AFR reported that “S&P says those ‘future-facing’ commodities are unlikely to fill the hole left by the petroleum division in the immediate future”.
“We could lower our ratings on BHP by up to two notches in the coming months, based on our updated review of the strength of the group’s business risk profile, if the divestment of its petroleum assets takes place as proposed. The rating action will be subject to our reassessment of the company’s portfolio compared to its immediate peers.”
BHP share price snapshot
At its highest point this year, the BHP share price was up 28.56% year-to-date.
Last week’s harsh selloff has shrunk these gains to a measly 5.87%.
BHP investors should note its shares will go ex-dividend on Thursday, 2 September for a final dividend of US$2.00 per share.
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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.