BHP faces $2.3bn tax hit following Trump action to slash US rates

BHP will take a $US1.8 billion income tax hit when it reports interim profit next week because of Donald Trump’s US tax cuts.

BHP Billiton’s operations at Port Hedland.

BHP Billiton will take a $US1.8 billion ($2.3bn) income tax hit when it reports interim profit next week because of US President Donald Trump’s tax cuts.

The massive sum will leave a big dent in BHP’s statutory profit when the company reports its first-half earnings on Tuesday.

But that is actually good news as the charges are non-cash and are actually representative of bigger future cash flows.

Essentially, they are the write-off of tax credits that cannot be used because BHP now expects to pay less tax.

“As a result of the US Tax Cuts and Jobs Act introducing a reduction in the US federal corporate income tax rate from 35 per cent to 21 per cent ... BHP expects to recognise an income tax expense of $US1.8 billion, which will be treated as an exceptional item,” the company said.

“The US tax reform will have a positive impact on the group’s US attributable profits in the longer term mainly due to the lower corporate tax rate.”

BHP is expected to deliver first-half underlying profit of $US4bn. The tax charges could almost halve this but analysts said the market would not be worried by the hit because of the positive long-term implications.

Of the charges, $US898m is related to a revaluation of deferred taxes in the US because of the tax cuts.

$29.90 BHP closed up 34¢

BHP’s main US assets are its onshore shale oil and gas and offshore Gulf of Mexico oil platforms.

Another $US834m is related to tax treatment of the giant Escondida copper mine in Chile that BHP owns with Rio Tinto. That is because Escondida’s tax rate is partly based on US corporate tax rates.

In an interview with The Australian this week, BHP chief Andrew Mackenzie called on Australia to follow the US in cutting tax cuts, saying the economy could start to be lifted “in a matter of months”.

Separately yesterday, Standard & Poor’s upgraded Rio’s debt to an “A” rating after a strong 2017 result, while UBS analysts predict the miner will be able to return $US8bn a year to shareholders for the next three years.

S&P said Rio’s debt reduction in recent years, thanks to cost-cutting and strong commodities prices, had left the company able to pursue bigger acquisitions, without putting its new A rating in danger.

“The company’s current financial position and financial policy, including dividends linked to performance, will provide significant financial resilience,” S&P said. “Material reduction in absolute debt will give Rio Tinto significant resiliency during future downturns. Alternatively, it could allow the company to enter into sizeable merger and acquisition transactions without overstretching its balance sheet.”

Last week, Rio said underlying full-year profit rose 69 per cent to $US8.6bn, leading to a record $US2.90 per share full-year dividend and a $US1bn buyback boost.