BHP First-Half Profit Soars on Price Rally to Beat Estimates

  • Top miner to buyback $2.5 billion of bonds, boosts dividend
  • Copper guidance under review, BHP back in talks on strike: CEO

What's Driving the Rebound in Commodity Prices?

BHP Billiton Ltd., the world’s biggest mining company, reported first-half profit jumped as commodity prices surged on increased demand from China, moving to capitalize on the rally with a better-than-expected dividend and a bond buyback.

Underlying profit rose to $3.24 billion in the six months through Dec. 31, Melbourne-based BHP said in a statement Tuesday. That compared to $412 million in the same period a year earlier, when miners’ earnings cratered amid a collapse in prices. The result beat the $2.94 billion average estimate among seven analysts surveyed by Bloomberg. The company’s London-traded stock rose 1.8 percent.

The interim dividend rose to 40 cents a share, from 16 cents a year earlier, and was higher than the minimum amount set out under a policy that ties returns to profits, BHP said. The payment compared with a Bloomberg Dividend Forecast of 30 cents. The company cut net debt by almost $6 billion and will carry out a bond buyback of $2.5 billion.

A rebound in commodities from early 2016 has seen the mining sector transformed as China’s stimulus has spurred activity in property and infrastructure sectors, boosting demand for raw materials. BHP cautioned that improved global growth may be delayed by rising political uncertainty, with China’s exports challenged by a threat from protectionism and the policy platform of the new U.S. administration pointing to a higher-than-envisaged inflation environment.

“It’s still a pretty uncertain world out there, so they are being conservative” in flagging a continued focus on debt reduction, Andy Forster, a Sydney-based senior investment officer at Argo Investments Ltd., which manages about A$5 billion ($3.8 billion) in Australia, said by phone. “They may be cautious that the rally could just as quickly turn back around the other way.”

Commodities prices face near-term challenges, with some materials trading above the company’s forecasts of appropriate long-term prices, Chief Executive Officer Andrew Mackenzie said in the statement. Longer term, the economy in China, the top commodities consumer, will continue to rebalance from industry to services, shifting the center of growth from investment and exports toward consumption, the company said.

Free trade “is good for everybody and a very important driver of economic growth in the short term and long term,” Mackenzie, who met with Trump last month in New York, told reporters on a conference call. “While there may be some short-term winners from some policies of protectionism and increased trade wars, most of us would be losers and future demand for our products could suffer if that were to spread.”

Escondida Talks

Anglo American Plc said Tuesday in London that profit more than doubled last year as commodity prices soared, meaning the company no longer needs to sell assets to reduce debt. Rio Tinto Group, the second-biggest miner, this month reported its first full-year profit gain since 2013 and rewarded investors with a share buyback and a bigger-than-expected dividend.

Copper production guidance for the 12 months to June 30 is under review as a result of a strike at the Escondida mine in Chile, BHP said. The producer is seeking a resolution in coming days, Mackenzie told reporters. BHP in January forecast total full-year copper output of 1.62 million tons, including about 1.07 million tons from Escondida.

BHP has confidence in the outlook for oil, which it expects to rebalance in the near term, and for copper, where the producer sees a deficit to emerge in the early 2020s, the company said. Iron ore prices are likely to be pressured in the short term on moderating Chinese steel demand growth, according to the producer.

Prices for iron ore, BHP’s top earner, surged more than 80 percent last year as China’s imports hit a record and advanced Monday to the highest since August 2014. Iron ore earnings before interest, taxes, depreciation and amortization rose 52 percent, while copper earnings more than doubled.

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