The Distillery: A BHP bonanza?

Commentators believe a buyback may be on the cards for BHP shareholders, while the Paul Zahra rumour mill is in overdrive.

BHP Billiton has more excitement to come, according to the commentariat, after it announced strong production figures yesterday to the delight of the market. One praises the miner’s cost-cutting strategy while another sees room to reward shareholders in the form of a buyback, just not quite yet.

Elsewhere, the departure of David Jones chief executive Paul Zahra continues to have tongues wagging, with one scribe arguing there’s much more to the story than meets the eye.

First to BHP. The Australian’s Barry Fitzgerald labels the group’s latest figures as “good to strong” and suggests it lays the groundwork for a future buyback, which many investors are requesting.

“Give it another year or two of these elevated iron ore prices, and take in further capex falls as projects are completed and fewer new ones pass the litmus test, and BHP will be in a position to reward shareholders with a buyback. So the 2015 financial year is a possibility for a buyback, but 2016 would seem more likely.”

If it could offload its nickel and aluminium assets at a decent price, then this timeline could move forward, Fitzgerald believes.

The Australian Financial Review’s Chanticleer columnist Michael Smith, meanwhile, says the latest production numbers reveal a significant step forward from the doom and gloom of last year. The cost-cutting plan of chief executive Andrew Mackenzie is paying off, though he warns the long-touted buyback comes with risk.

“Investors do not take kindly to disappointments at the moment and will be pleased that Mackenzie looks like he may be able to follow through on his pledge to take a “laser-like” focus to costs. The only danger is that the pressure to return excess capital to shareholders comes at the sacrifice of growth.”

Smith’s colleague at the AFRMatthew Stevens, also looks into BHP, though he ignores the production figures and instead spotlights a renewed source of agitation for the group’s shareholders ahead of Thursday’s AGM in London: the OK Tedi mine in Papua New Guinea.

The triggers for recovered concern over Ok Tedi are the mine’s expropriation by the PNG government and prime minister Peter O’Neill’s moves to excise BHP’s legislated protection from any trailing liability from the mine’s operation before and after 2001. O’Neill’s move to nationalise a 63.4 per cent stake in Ok Tedi without, so far, the indulgence of any level of compensation has triggered understandable angry protest by the mine’s erstwhile owners and its host communities.

The complicated tale provides many lessons and contrasting viewpoints.

Australian retailer David Jones, too, has a complicated story to tell. The department store owner has seen its chief executive depart on a whim, leaving most in the market perplexed.

Fairfax’s Elizabeth Knight asserts that the exit simply “doesn’t pass the smell test”.

“Six weeks ago Zahra told me over lunch, ''I couldn't imagine myself doing anything else because I love the company''. Either Zahra's next job is in acting or he did not envisage this week's chief executive ''transition''. My money is on the latter… Chief executive's don't side-swipe investors with a decision like this if they are in control of the timing.”

Still, the focus must now shift to succession and Knight argues there is no logical internal candidate. The Australian’s John Durie agrees, suggesting the board look outside DJs to find the right person.

“The problem for chairman Mason, leading a board with zero retailing expertise overseeing department stores that are the most specialised of the breed, is the need to find someone who can handle the job. Having tried an internal candidate last time, that person is now more likely to come from outside.”

In politics, the Commission of Audit is receiving attention as the new Abbott government almost doubles the debt ceiling. The AFR’s economics editor Alan Mitchell debates the merits of the audit and finds Abbott’s second-term survival could hinge on its success in driving reform. The publication’s politics editor, Laura Tingle, concurs, viewing the Coalition’s move as a chance to “rewrite the economic debate”.

Such an opportunity, however, comes with great pressure and significant challenges.