BHP profit more than doubles to $12.2 billion as mine disaster impact eases


August 20, 2019 10:50:11

BHP has reported a better than doubling of its full-year profit to $US8.3 billion ($12.2 billion).

Key points:

  • Shareholders receive a $15.4b windfall from the sale of US oil and gas interests as part of a record full-year dividend
  • While the full-year profit jumped by 124 per cent to $US8.3b, underlying earnings disappointed the market
  • The result was supported by stronger commodity prices, with production volumes falling in iron ore, coal, copper and nickel

However, a large part of the 124 per cent rebound was driven by a lower financial impact from the 2015 Samarco dam collapse in Brazil , although a further $US800 million impairment from the disaster hit the balance sheet.

Underlying earnings — stripping out exceptional gains and losses, such as the Samarco cost — came in at $US9.1 billion ($13.4 billion), marginally lower than analyst expectations.

Iron ore was the stand out performer for the company, with its $US11.1 billion in pre-tax earnings representing almost half of the company’s profits.

However, from an operational point of view, BHP’s investors would be disappointed with lower production across its key portfolio of commodities, given the big investments the company has made in recent years to improve efficiency.

  • WA iron ore: 270 million tonnes in 2019, down from 275 million tonnes in 2018 (-2pc)
  • Metallurgical coal: 42 million tonnes in 2019, down from 43 million tonnes in 2018 (-1pc)
  • Thermal coal: 27 million tonnes in 2019, down from 29 million tonnes in 2018 (-6pc)
  • Copper: 1,689 thousand tonnes in 2019, down from 1,753 thousand tonnes in 2018 (-6pc)
  • Nickel: 87 thousand tonnes in 2019, down from 91 thousand tonnes in 2018 (-6pc)

BHP chief executive Andrew Mackenzie defended the production results, noting that over the past five years volumes had increased by 10 per cent and unit costs cut by more than 20 per cent.

“Over the 2019 financial year, underlying improvements in our operational performance were offset by the impacts of weather, resource headwinds and unplanned outages,” he said.

The performance was dragged down not only by the impact of Cyclone Veronica earlier this year and an iron ore train derailment in the Pilbara in November, but also by falling copper grades and aging oil fields off the US coast.

BHP paid a record full-year dividend of $US1.33 per share ($1.96), propped up by a special dividend from the $US10.4 billion ($15.4 billion) proceeds from the sale of US onshore oil and gas operations, which was pumped straight back to shareholders.

Mr Mackenzie said global economic growth was likely to edge down next year, with the possibility of increased trade protectionism and a loss of the business confidence likely to weigh on commodity demand and prices.

He said China’s growth was expected to slow “modestly”.

“The negative impact of weaker exports is expected to be offset by easier monetary and fiscal policies.

“The US performed strongly in the 2018 calendar year, but near term prospects are less certain. The expansionary impact of tax cuts is expected to progressively fade and trade policies remain uncertain.”

Despite those trade worries, Mr Mackenzie said productivity investments over the years had put the company in a strong position.

“Higher prices and record production from several of our operations contributed to strong operating cash flows. We used that cash to invest in attractive growth projects, advance our exploration programs and increase returns to shareholders,” he added.

Shares slide

JP Morgan analyst Lydon Fagan said forward guidance in terms of production and further spending were inline with expectations.

“Overall we believe it was a relatively clean, inline result which the market will largely overlook,” Mr Fagan said.

However, RBC’s Paul Hissey said higher costs in the result were disappointing.

“[It was a] softer underlying result versus our estimates and consensus could see underperformance in trading versus peers,” Mr Hissey said.

“Overall, this was a softer underlying result relative to both our estimates and consensus.

“The result appears to be largely driven by higher costs at Queensland coal, as well as general cost increases in the petroleum and copper divisions.”

Investors were not all that impressed with their first glance at the results, with BHP shares sliding 1.6 per cent to $35.70 in early trade.










First posted

August 20, 2019 09:09:26

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