BHP Billiton (BHP) negotiated yesterday’s AGM in Perth with little difficulty, despite the now usual protests from the usual suspects, with the issue of the moment, the mine dam disaster in Brazil discussed extensively as well as the company’s dividend policy.
Investors took heart from the reassurances to the meeting from chair, Jac Nasser, and CEO, Andrew Mckenzie that the company would do everything to fix the dam disaster problems and the costs involved for the locals.
As a result the company’s shares had their best day for some weeks – rising 3% to $20.42 and well away from the multi year lows touched on Monday and Tuesday.
In fact BHP shares were rising ahead of the meeting yesterday as investors realised they had been oversold on the sharp falls in iron ore, copper and oil and gas and at around $20 represented a bargain, especially given the solid dividend.
On the dividend, chairman Jac Nasser made clear to the meeting that the company’s balance sheet “must always come first” when reviewing the level of dividend it pays to shareholders.
He said the dividend “is an outcome of appropriate capital management. Our starting point is to maintain the strength of the balance sheet through the cycle."
And CEO, Andrew Mckenzie said that despite commodity price falls reducing the miner’s earnings by more than $US15 billion, the balance sheet remained strong.
"Through productivity gains we have maintained the ability to pay the progressive dividend we have increased our capacity to grow your company and we have secured our strong balance sheet which we will never put at risk," he said.
Mr Mackenzie said falling unit costs would drive balance sheet improvements in this financial year, with the group expecting its WA iron ore division to drop costs by $US15 per tonne (before freight and royalties) and increase volumes by 7 per cent while its Queensland coal division was eyeing a fall in cash costs to $US61 a tonne.
The miner is also eyeing a 15% reduction in costs at its Escondida copper operations as world copper prices fall closer to $US2 a pound (Comex prices). Mr Nasser said it was difficult to give a definitive view on where the global economy was heading in 2016, citing geopolitical issues such as terrorism and adjustments in major economies (He is not alone in finding it tough to look out into 2016).
But he said global growth would return to “healthier levels” as transitions were made and BHP was well-placed for the long-term.
"This growth will largely depend on the successful rebalancing of China to a consumption and services economy, recovery of growth in developing nations, and a healthy US economy," he said.
"As these events occur, incomes will increase and demand will grow, especially for metals and energy, our core products."
Mr Nasser said the company would focus on "creating value through the cycles" in the sector with Mr Mackenzie saying: "We will only invest to grow the right opportunities at the right time.
"In the near term, we will address bottlenecks in a capital-efficient manner and unlock high-value, super high-return and additional production."
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But as was to be expected, the meeting was dominated by the Samarco mine dam disaster and its cost – both financial and reputational.
Both Mr Mackenzie and Mr Nasser said the incident had shaken the company, they offered condolences to those affected, and an external probe into the disaster was announced to the meeting.
"Everyone at BHP Billiton has been overwhelmed with sadness and concern for the community there. I travelled to the region last week and what I witnessed on site and around the community was truly heart-breaking," Mr Mackenzie said.
"I want to reiterate that we are 100 per cent committed to doing everything we can to support Samarco in the response effort and the community to recover and rebuild.
"We are deeply sorry to everyone who has and will suffer from this terrible tragedy. They have my absolute determination that we will fully play our part in helping Samarco reconstruct homes, community and spirit.
“We are in this for the long term and will continue to work with Vale (The 50% partner in Samarco) and the people of Samarco to make sure there is a strong future for the region.” The companies have already donated $US260 million to a fund to meet the initial costs of the disaster.
Mr Nasser said he had lived and worked in Brazil earlier in his career.
"For me, this is personal. As Andrew Mackenzie said to the people of Mariana and the people of Brazil: we are 100 per cent committed to do everything we can to support Samarco and make this right," he said.
"We will do this by working hand in hand with Vale and Samarco.
"We are deeply sorry for all of those who have been impacted by this tragedy, in particular for the friends and families of those who died and those who are missing, as well as those who have lost their homes and feel uncertain about the future."
Mr Nasser said the probe would be commissioned by both BHP and Vale.
“It will be some time before this investigation concludes but when it does, you have my commitment that we will publicly release the findings," he said.
“We will also share the results with other resource companies." Mr Nasser told the meeting BHP is enduring one of the most difficult years in its history: ”This year will go down as one of the most difficult in our 130 years,” he said.
Besides the outside inquiry, a subcommittee of the BHP board was monitoring BHP’s recovery efforts at Samarco.
"We will learn from these tragic events and do all we can to never see them repeated," he said.
