By Scott Patterson in London and Robb M. Stewart in Melbourne
The chief executive of the world's most valuable mining company, BHP Billiton Ltd., faces a vexing test: an activist investor that appears to be agitating for his ouster.
BHP CEO Andrew Mackenzie has come under fire in recent months from Elliott Management Corp., a hedge fund founded by Paul Singer that is pushing for sweeping changes at the British-Australian mining giant. Unless Mr. Mackenzie acts more aggressively on the fund's recommendations soon, Elliott believes BHP's board, under new chairman Ken MacKenzie, should review the CEO's position, according to people familiar with the matter.
It is the latest big problem for Mr. Mackenzie, who as CEO has faced challenges ranging from a catastrophic dam failure in Brazil to a commodity-price collapse that ravaged his company's balance sheet and forced him to break a promise to never cut the firm's dividend.
Investors closely watched the new chairman at the company's annual general meeting in London on Thursday for signs of his support for the embattled CEO.
"There is much... Andrew Mackenzie and his leadership team have delivered in the past five years to set up BHP for success," the chairman told shareholders. "Andrew, I look forward to working with you and your management team."
The dispute with Elliott has solidified discontent among some investors with BHP's performance over Mr. Mackenzie's tenure -- a five-year period during which the company's stock has lagged behind some peers. BHP's London-listed shares have lost 27% of their value in that time, compared with a 6% gain for Glencore PLC and an 11% rise for Rio Tinto PLC, according to FactSet, a data provider.
Critics say he failed to swiftly deliver on promises made when he assumed the top spot at the company to clean up its debt-laden balance sheet and exit unprofitable businesses.
Peter O'Connor, an analyst at Shaw & Partners in Sydney and a former BHP employee, said he would be disappointed if there wasn't a move to appoint a new CEO by early 2018. While Mr. O'Connor says he believes Mr. Mackenzie has done a decent job, he thinks he lacks the support inside the company needed to motivate employees and lift BHP's performance.
"If it's not working, it's not working," Mr. O'Connor said.
Elliott has zeroed in on long-known BHP quirks such as its unwieldy dual-listing in London and Sydney and its large U.S. oil-and-gas arm. Elliott has urged BHP to spin off its U.S. oil-and-gas assets and criticized the company for "value-destructive deals," saying management should instead focus on its "world-beating mining assets" and share buybacks.
The hedge fund recently wrapped up a world tour meeting BHP investors and has built support for some of its ideas.
Elliott began advocating for changes at BHP last year and disclosed a big stake in the company this spring. Elliott holds about 5% of BHP's London shares, with a market value of nearly GBP2 billion ($2.64 billion), according to FactSet.
Craig Evans, a portfolio manager at Sydney fund manager Tribeca Investment Partners, a BHP investor that has joined Elliott in criticizing the mining company's performance, says he has been impressed by comments by BHP's new chairman, Mr. MacKenzie, about returning cash to shareholders. Tribeca continues to call for changes to BHP's board, which it has criticized for expensive and badly timed acquisitions in recent years and lacking a diversity of experience.
Mr. Mackenzie, the CEO, has generally stood his ground against Elliott.
BHP rejected collapsing the dual-listing structure into a single entity as too costly. The company has also rebuffed Elliott's demand for a regular schedule of buybacks, saying they reduce the company's flexibility.
BHP initially stood behind the oil-and-gas assets in general and said they helped diversify its portfolio. Mr. Mackenzie appeared to reverse course on the company's onshore U.S. oil-and-gas operations in August, saying the assets weren't core operations. BHP said that position isn't new.
Mr. Mackenzie, the CEO, said at Thursday's shareholder meeting that the company continues to review its options regarding its U.S. shale business. "We will be urgent and patient," he said.
"Your company is in strong shape," he added.
When Mr. Mackenzie assumed the helm of BHP in 2013, he signaled things were going to change at the mining giant, which had binged on huge, costly deals, including about $20 billion on U.S. shale and gas producers just before natural-gas prices plunged.
Mr. Mackenzie hasn't been standing still. He spearheaded the spin-off of unwanted assets, including nickel, aluminum, coal and manganese operations, into South32 Ltd., one of the largest corporate breakups in mining history. He shelved expansion plans, slashed capital spending and focused on returning cash to investors via dividends.
But the company stumbled in 2015 amid plunging prices for its chief commodity, iron ore, and a disaster at its Samarco mine in Brazil, which it jointly owned with Vale SA, resulted in charges of more than $1 billion. BHP slashed its dividend in February 2016 despite Mr. Mackenzie's comments the previous year about his reluctance to contemplate cutting the dividend.
"Over my dead body sounds a little strong, but it is almost right," he said at the time.
Hugh Young, head of Asia at Aberdeen Standard Investments, a big BHP investor, said it is fair for Elliott to be critical of past decisions and investments, though the blame can't be put on Mr. Mackenzie. "He seems to be doing a decent job in the circumstances," he said.
In general, investors have cheered the appointment of BHP's new chairman, Mr. MacKenzie, a former packaging-industry executive with experience cutting costs and turning around performance. Elliott was supportive of his appointment.
"He's a different kind of chairman," said Brenton Saunders, an analyst at BT Investment Management in Sydney, another BHP investor.
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