BHP Billiton (BHP) is facing another billion dollar hit to its bottom line (on top of last week’s $A10 billion whack) and has cut its full year iron ore production target thanks to the Samarco disaster in Brazil.
At the same time, the company’s CEO Andrew Mackenzie has raised the possibility of a change to its dividend policy to protect the company’s financial strength and allow it to make some strategic buys in the current downturn.
The company is widely expected to consider a change in its commitment to maintain or increase its dividend when it reveals its interim financial results next month.
"Commodity prices fell substantially in the first half of the 2016 financial year putting pressure on the whole resources sector. We continue to cut costs and remain focused on safely improving our operational performance to enhance the resilience of our business,” CEO Andrew McKenzie said in yesterday’s statement.
“In this environment, we are also committed to protecting our strong balance sheet so we have the financial flexibility to manage further volatility and take advantage of the expected recovery in copper and oil over the medium term."
Notice he did not say any recovery in iron ore of coal.
Tumbling oil prices – which led to a write-down of $US7.2 billion on US shale assets this month – have added to the pressure exerted by weaker iron ore and copper prices.
BHP paid an interim dividend of 62 US cents a year ago, up from 59 cents in the previous year.
BHP said in yesterday’s first half production report that next month’s interim results will include write-downs worth $US911 million ($A1.32 billion) relating to redundancies and closures, as well as a revaluation of its copper business. BHP now expects to produce 237 million tonnes of iron ore in the June 30 financial year, 10 million tonnes down from original target, following the suspension of operations in November at its Samarco joint venture mine in Brazil (held with Vale).
BHP produced 57 million tonnes of iron ore in the December quarter, up 1% from last year, helped by record production at its Pilbara mines in Western Australia. Output for the December half year was up 4% at 118 million tonnes.
The resources giant, however, has flagged further write-downs as it grapples with the impact of the commodities slump. It plans to write down between $US425 million and $US575 million from its first half earnings before interest and tax (EBIT), on account of redundancies and closures, inventory write-downs across its businesses, and royalty and taxation matters.
The company will take another $US336 million impairment charge for the interim result on account of a revaluation of copper sales (thanks to falling prices for the metal). These impairments are on top of the $US7.2 billion ($10.3 billion) write-down in the value of its US shale assets that the company announced last week.
And BHP reminded investors that still to come is the cost of the Samarco disaster and clean up (to be shared with Vale and their insurers).
“It is too early to provide an estimate of the financial impact on BHP Billiton. We are continuing to work closely with Samarco and will provide an estimate as soon as we are in a position to do so.
"BHP Billiton’s 50 per cent interest in Samarco is recorded as an equity accounted investment as one line on the balance sheet. Any charges related to the event are expected to be classified as an exceptional item,” directors said yesterday.
But late yesterday reports from Brazil suggested a deal could be close to announcement with the country’s solicitor-general reportedly saying authorities may negotiate a settlement
General Luis Inacio Adams was quoted as saying the government would seek R$20 billion ($US4.92b) in damages from mining company Samarco, which is co-owned by BHP and Vale.
He made his remarks on Monday night. He said the talks with the companies would address social, environmental and economic problems caused by the dam bursts and subsequent flooding.
BHP said production guidance for the rest of the year for its huge petroleum, copper and coal businesses remains unchanged.
BHP said its petroleum production fell 5% during the December quarter to 60.2 million barrels of oil equivalent (mmboe), as it continued to reduce the number of rigs in its US shale business. Despite cutting back on capital spending, it expects to achieve the production target of 237 mmboe this financial year, on the back of strong output from its conventional oil and gas business where production is being boosted to make up for the shortfall from shale.
Copper production in the quarter fell 9% to 385,000 tonnes but the company expects to maintain its annual target of 1.5 million tonnes, helped by a jump at the Olympic Dam operations in South Australia. BHP shares fell 3.8% to $14.17, an eleven year low during trading of $14.14 as markets slid on another dip in oil prices in Asia.
