How one BHP equals four big banks

Australia’s biggest and most globally significant company, BHP, has for the second time made a profit equal to that of all four big banks combined.

BHP has done it again.

Australia’s biggest and most globally significant company has for the second time made a profit equal to that of all four big banks combined and on one measure actually much bigger than that of the entire Australian banking system.

BHP reported Tuesday an ‘underlying’ after-tax profit for 2021-22 from its ‘continuing operations’ - that excludes big ‘one-offs’ and its petroleum division which it merged with Woodside – of $US21.3bn or just on $30bn.

But if we add back in the petroleum division – which was part of BHP for most of the year – and the one-offs, its total bottom-line profit actually came to staggering $US31bn or over $43bn.

That was after paying more than $24bn in taxes and royalties. Now those numbers were stupendously big enough. Profit equalled more than $1600 for every single one of us 26m. The taxes came to just under $1000 per Australian.

But even more startling is the comparison with the banks. Only the biggest, the CBA, has so far reported. It made just under $10bn. The other three balance at end-September.

Their profits will add to around $20bn in total; the four will make something around BHP’s $30bn underlying profit, but barely two-thirds that gigantic all-encompassing $43bn number.

The last time this happened was in 2011, when BHP actually made a slightly higher (underlying) profit in US dollar terms - $US21.7bn.

But because back then the Aussie dollar was actually above parity with the greenback, it translated to a much smaller Aussie dollar number of just over $20bn. And a little less than the total profit of the four banks.

BHP CEO Mike Henry. Picture: Colin Murty/The Australian

In 2011 BHP’s profit was all about China – as it went on its massive construction spending boom after the GFC, sucking in our iron ore and coal.

Back then, incidentally, BHP was going much deeper into petroleum under then-CEO Marius Kloppers, pouring tens of billions of dollars into US shale – and, metaphorically speaking, straight down the drill holes.

Now in 2022, the humungous profit was all about, yes still, China, but also Russia. The ‘same old’ China story, but also what Russia has done to energy prices, oil, natural gas and both types of coal, with its Ukraine attack.

I might note that while BHP the company now misses out on those high oil and gas prices, BHP shareholders don’t. They kept their continuing stake in petroleum and got it bulked up with the Woodside assets.

The iron ore numbers eased off a bit with a lower but still very lush average price over the year. Pre-tax profit from iron dropped from $US24.3bn to $US19.5bn – with the lower price and a kick-up in production costs.

The gross profit margin in iron ore went from a super-fabulous 76c in the sales dollar to a slightly less, but still, super-fabulous 70.5c in the sales dollar.

The profit surge was all about coal. Last year coal made a slight loss. This year it delivered just under $US9bn in pre-tax profit, with revenue tripling to nearly $US16bn.

Copper was solid but all but unchanged, contributing $US6bn. That’s the 2022 BHP; under now-CEO Mike Henry, it is embarked on semi-transforming itself into the supposed renewables-plus-batteries ‘de-carbonised future.

Oil and gas have gone, although more for conventional operational reasons; and met coal is slated to follow. To be replaced first by potash – fertiliser – and then the ‘battery metals’: (more) copper and nickel. Hence the $8bn bid for OzMinerals.

There’s also a cynical realism in the medium-term strategy. That China and its insatiable appetite for iron ore, met coal and energy coal ain’t going away anytime soon. BHP plans – hopes – to make a lot of money for years – decades? – out of China’s iron ore and coal-chomping, CO2-belching, future.

Originally published as How one BHP equals four big banks