BHP shares jumped nicely yesterday after the world’s biggest miner boosted interim dividend by more than 50% off the back of a solid performance in the six months to December.
The interim dividend was lifted to a high $US1.01 a share from 65 US cents previously in a vote of confidence from the board in the outlook.
Thanks mostly to higher iron ore and copper prices, the rebound in oil prices and continuing strong cost controls the shares climbed to $47, up 2.7%.
The world’s biggest miner reported a 15% rise in revenue to $US25.63 billion for the half and an 18% rise in underlying net profit to $US6.036 billion from $US5.186 billion in the December, 2019 half year.
And thanks to a 3-percentage point expansion in its operating margin to 59%, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 21% to $US14.7 billion.
The company’s WA iron ore business generated EBITDA of $US10.2 billion in the half and BHP expects more of the same is expected in the second half, with management also reaffirming its full year unit cost guidance.
The copper business contributed $US3.7 billion in EBITDA. It is also on track to achieve its guidance for the full year as world prices top $US8,000 a tonne (and move closer to $US4 a pound on Comex) – levels not see for nearly a decade.
Finally, the metallurgical coal and petroleum businesses contributed $US100 million and $US800 million of EBITDA, respectively, during the half.
While the met coal segment fell short of guidance in the first half (thanks to banks by China), it is still expected to achieve its full year guidance. The petroleum business is performing in line with expectations, BHP said.
BHP CEO Mike Henry, commented in the release that: “BHP has delivered a strong set of results for the first half of the 2021 financial year. Our continued delivery of reliable operational performance during the half supported record production at Western Australia Iron Ore and record concentrator throughput at Escondida.
“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.
“The Board has announced a record half year dividend of US$1.01 per share, bringing BHP’s shareholder returns to more than US$30 billion over the past three years.”
The Chief Executive also commented on the near record iron ore price, stating: “Our analysis indicates that before prices can correct meaningfully from their current high levels, one or both of the Chinese demand/Brazilian supply factors will need to change materially.”
The write off in the value of its steaming (thermal) operations in Australia and Colombia of $US2.2 billion) saw the statutory net profit fall to $US3.9 billion for the latest half year.
BHP said profit from operations was $US9.8 billion ($US8.3 billion in the 2019 first half) “higher iron ore and copper prices, record production at WAIO and record average concentrator throughput at Escondida, solid cost performance supported by cost reduction initiatives across our assets and other net movements.”
“This was partially offset by the unfavourable impacts of a stronger Australian dollar, planned maintenance, natural field decline at petroleum, copper grade decline, adverse weather and inflation.”
The total impact from COVID-19 on BHP’s operations in the half was a pre-tax figure of $US436 million.
BHP said that figure was made up of “Lower volumes at our operated assets of $US138 million and additional direct costs of $US298 million (exceptional item) incurred, such as increased social distancing measures including additional charter flights, accommodation, security and health and hygiene services ($US200 million) combined with higher demurrage and other standby charges related to delays caused by COVID-19 ($US100 million).
BHP said that these costs translated to additional costs at its major assets of: $US1.42 per tonne at Queensland Coal, 56 US cents a tonne at WA Iron ore operations, 25 US cents a barrel of oil equivalent at Petroleum and 0.02 US cents a pound at the Escondida copper mine in Chile.
Looking to the rest of the year BHP said that that at its WA iron ore business (WAIO,) Queensland Coal and NSW Energy Coal production guidance for the 2021 financial year remains unchanged despite adverse weather impacts during January and February 2021, with Queensland Coal and NSWEC volumes expected to be at the lower half of the guidance range.
