BHP delivers $US30.9bn annual profit as Mike Henry shuffles executive deck

Chief executive Mike Henry has warned Chinese iron ore demand may have little room for growth but China’s return to economic normality in the next year would be a tailwind for the sector.

Mike Henry has warned Chinese iron ore demand may have little room for further growth, although the BHP chief executive says China’s return from Covid-19 lockdowns should boost demand for resources over the next year.

Speaking after delivering a massive $US30.9bn ($44.2bn) annual profit, Mr Henry said the mining giant expected China’s return to economic normality would provide a “tailwind” for the resources sector, against the backdrop of an expected slowdown in other developed economies.

Slowing demand in China has cut the value of a suite of major commodities over the last few months, with industrial metals such as copper and aluminium well down on the heights of 2022, and iron ore prices briefly falling below $US100 a tonne in July.

But BHP rode strong pricing across its suite of commodities to deliver a bumper return to shareholders, beating analyst expectations by declaring a $US1.75 final dividend after booking a record $US30.9bn net profit from its operations for the financial year, up 173 per cent from last year.

The mining giant’s net profit was boosted by a $US7.3bn gain delivered through the merger of its oil and gas assets with Woodside, and the $US9.3bn turnabout in the results from its Queensland coal operations.

Excluding the gains from the merger with Woodside, and other discontinued operations, BHP’s net profit was $US20.3bn, up 76 per cent for the year.

BHP booked $US34.43bn in underlying earnings before interest and tax for the year, 15 per cent above last year’s restated mark of $US29.85bn. Analysts consensus estimates tipped BHP’s underlying EBIT at $US34.56bn for the last financial year.

BHP chief Mike Henry also announced some executive changes at the company. Picture: Aaron Francis/The Australian

BHP’s final dividend beat analyst expectations of a total payout for the year of $US3.12 a share. It paid a record $US1.50 a share half-year dividend in March.

Iron ore profits fell along with pricing, with underlying EBITDA of $US21.71bn, 17.7 per cent below last year’s restated mark of $US26.28bn.

BHP said on Tuesday it is considering its options to eventually lift Pilbara iron ore exports to as much as 330 million tonnes, with a medium-term target of 300 million tonnes. BHP shipped 282.8 million tonnes last financial year, and said it will export 278 to 290 million tonnes in the current year.

But Mr Henry warned analysts demand for iron ore may be nearing its peak, despite an expected recovery in China as the country eases Covid-19 restrictions.

“We believe and continue to believe that as it comes out of lockdown, as there‘s a bit more stimulus provided – and all the policy settings that we see in China currently are aligned with that, including recent meetings and what’s come out of those – that we’ll see a pick-up in the in the Chinese economy, against the backdrop of slowing global growth,” he said.

Iron ore prices have fallen this year partly due to Covid-19 restrictions in China, but also as its steel mills curtail production to meet demands from Beijing for “zero growth” in annual steel production. “We’ve also been saying for some time that as we progress towards the middle of this decade, that we’re moving into a plateauing phase for steel production and iron ore demand,” Mr Henry said.

“Now, exactly when you call that – and whether they’ve already plateaued or there’s a little bit further to run – who knows.”

The result came as chief executive Mike Henry reshuffled his executive deck, moving Minerals Australia boss Edgar Basto into a new role as BHP chief operating officer and handing former petroleum boss Geraldine Slattery the role of president of Australian operations.

Mt Whaleback iron ore mine from above.

Including the distribution of Woodside shares following the merger of the two petroleum division assets, worth $US3.83 for each BHP share held or $US19.6bn in total, BHP said it had paid a total dividend of $US7.08 to shareholders – or about $US36bn.

Mr Henry said the company’s operations had delivered record EBITDA of $US40.6bn for the year, and record free cash flow of $US24.3bn. “BHP enters the 2023 financial year in great shape strategically, operationally and financially, and well prepared to manage an uncertain near-term environment,” he said.

“We expect China to emerge as a source of stability for commodity demand in the year ahead, with policy support progressively taking hold. At the same time, we expect to see a slowdown in advanced economies as monetary policy tightens, as well as ongoing geopolitical uncertainty and inflationary pressures.”

BHP’s result was driven by the $US9.4bn turnaround of its coal operations, which delivered underlying EBITDA of $US9.5bn for the year, up from only $US288bn last financial year, despite lower coal volumes.

More than $US1.8bn of that total came from BHP’s Mt Arthur coal mine in NSW, which has on the market until only a few months ago. BHP said Mt Arthur booked underlying EBITDA of $US1.81bn for the year, with its metallurgical coal assets booking EBITDA of $US6.34bn.

BHP sold its share of its BMC coal operations to Stanmore Resources earlier this year, and said in July its BMA operations sold 17.2 million tonnes of coal for the June period, up about 2 million tonnes from a weather affected March quarter.

Annual metallurgical coal sales were down 9 per cent on the previous financial year, however, at 58.1 million tonnes.

But extraordinarily strong prices for BHP’s high quality coking coal more than made up for production weakness, with the company reporting an average price of $US439.60 a tonne for its hard coking coal in the June half, and $US366.82 for the full year – more than 225 per cent above the $US112.72 it realised the previous financial year.

Moody’s Investor Services analyst Matthew Moore said the strong performance from the company’s coal division reflected BHP’s “still solid operating and commodity diversity, despite several material divestments” in the last two years.

BHP shares rose 4.1 per cent, or $1.59, to close Tuesday at $40.51.

Originally published as BHP delivers $US30.9bn annual profit as Mike Henry shuffles executive deck