Cash splash: BHP pays record interim dividend
BHP will return a massive $US5.1bn to shareholders on the back of a surging iron ore price, even as statutory profits fell.
BHP will pay a monster $US5.1bn ($6.5bn) first half dividend to shareholders on the back of surging iron ore, as the mining giant tips the price of the key steelmaking ingredient will stay stronger for longer.
Chief executive Mike Henry said miner’s strong operational performance, on top of rising commodity prices, had delivered “robust” cash flows.
“Our operations generated robust cash flows, return on capital employed increased to 24 per cent and our balance sheet remains strong with net debt at the bottom of our target range”.
BHP’s board declared a record half year dividend of $US1.01 per share, up from US65 cents this time a year ago. This has translated to shareholder returns of more than $US30 billion over the past three years, Mr Henry noted.
“Our outlook for global economic growth and commodity demand remains positive, with policymakers in key economies signalling a durable commitment to growth and signalling ambitions to tackle climate change. These factors, combined with population growth and rising living standards, are expected to drive continuing growth in demand for energy, metals and fertilisers.”
While Mr Henry would not be drawn on commentary the mining sector is about to enter a new “super cycle” that will drive up commodity prices across the board, he said the company is expecting a “a pretty constructive outlook” for its products.
Mr Henry told analysts he expects China’s steel industry to produce 1 billion tonnes in 2021, the third consecutive year it would reach that mark, despite commentary from the Chinese government talking up restricting steel output.
BHP booked a 20 per cent fall in interim net profit to $US3.88bn struck on underlying earnings before interest, tax, depreciation and amortisation of $US14.68bn, and after the company slashed the value of its thermal coal assets as it prepares them for sale.
While the headline profit fell compared to the $US4.9bn it booked in the first half of the previous financial year, its underlying net profit of $US6bn was up 15.4 per cent.
Operational profit of $US9.8bn was up from $US8.3bn the previous comparable period, helped by high iron ore prices, record production from its Pilbara mines and the rising copper price at the back end of the half.
But the company sounded a warning on rising costs, saying measures to combat the spread of the pandemic had added US56c a tonne to costs of production at its WA iron ore operations, $US1.42 a tonne in Queensland coal and added to costs in petroleum and copper also, for a total of $US436m in the first half of the year.
BHP also lifted its capital spending and exploration guidance for the year by $US300m to $US7.3bn due to the strong Australian dollar, although it said its new South Flank iron ore mine was still tracking on budget.
Combined with BHP’s view it will take several years for Brazil’s iron ore sector to return to a growth trajectory, the company is flagging a strong iron ore price for some time to come.
“Our analysis indicates that before prices can correct meaningfully from their current high levels, one or both of the Chinese demand and Brazilian supply factors will need to change materially,” BHP said on Tuesday.
“The long run price will likely be set by a higher – cost, lower value – in – use asset in either Australia or Brazil. That assessment is robust to the prospective entry of new supply from West Africa, the likelihood of which has increased.”
Analyst consensus had tipped BHP’s underlying net profit at $US6.3bn, before impairments and other write downs, on the back of underlying earnings before interest and tax of $US11.57bn.
Analysts had expected BHP to return US84c a share in an interim dividend, or about $US4.24bn.
Its iron ore operations again dominated the result, delivering underlying EBIT of $US9.32bn for the six months to the end of December, up from $US6.34bn in the first half of the previous financial year.
BHP is the first cab off the rank in a week that could see Australia’s iron ore majors hand back as much as $20bn to shareholders across the world as the iron ore price delivers record profits to Pilbara miners.
Consensus analyst estimates, compiled by Vuma and published on each of the company’s own websites, tip Fortescue to pay $1.329 a share half-year dividend and Rio Tinto predicted to pay $US4.80 for its full year result.
That would equate to a $4.1bn return for Fortescue shareholders and $US7.77bn ($10bn) for Rio holders.
And BHP is also bullish on copper and nickel, flagging medium term risks to copper – currently trading around long-term highs – from emerging projects in South American, but saying it was bullish in the long term, saying “exposure to the electrification mega – trend offers attractive upside”.
“Grade decline, resource depletion, water constraints, the increased depth and complexity of known development options and a scarcity of high – quality future development opportunities are likely to result in the higher prices needed to attract sufficient investment to balance the market,” BHP said.
BHP’s copper operations posted a $US2.9bn profit, before interest and tax, in the half-year, up from $US1.55bn in the six months to the end of 2019.
BHP shares closed up $1.25, or 2.8 per cent, to $47 on Tuesday.
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