BHP profit eases activist ire
Higher prices for iron ore and coal, a bigger dividend payout and a commitment to exit its US shale gas business have helped BHP assuage its fractured relationship with activist shareholder fund Elliott Management Corporation.
The mining giant last week reported underlying profit of $US6.7 billion, up 454 per cent on the previous year, but well short of analysts’ expectations of $US7.3 billion.
The bottom line profit of $US5.9 billion, contrasted with a loss of $US6.4 billion in the previous year, which was mainly attributable to the Samarco dam collapse.
The result was driven by the company’s Pilbara iron ore operations which delivered revenue of $US14.6 billion, compared with $US10.5 billion in the 2016 financial year on higher prices for the commodity.
Iron ore’s contribution was 40 per cent of BHP’s revenue.
Revenue of $US7.6 billion from the coal division was up from $US4.5 billion the previous year on rebounding prices.
The strong performances from the two divisions helped fund a trebling of the company’s final dividend to US43¢ a share, up from US14¢ the previous year, representing a 75 per cent payout ratio and raising the annual payout to US83¢.
BHP also announced last week it would exit its underperforming US shale business, which had been one of Elliott’s three complaints.
The Paul Singer-led fund, which this month announced it had raised its stake in BHP to 5 per cent, had also wanted the miner to ditch its dual listing structure and boost returns to shareholders.
While the dual listing is likely to remain because of regulatory issues, the higher dividend payout may go some way to appease Elliott’s concerns.
BHP chief executive Andrew Mackenzie said the company had generated free cashflow of $US12.6 billion over the year, its second highest on record.
“We used this cash to reduce net debt by nearly $US10 billion and return $US4.4 billion to shareholders,” he said.
“Productivity gains across our simpler portfolio of tier one assets increased our return on capital to 10 per cent.”
BHP predicted the premium commanded by its higher-grade iron ore lump and fines product from WA would remain healthy, at least for the rest of the calendar year.
Chinese steelmakers have been forced to maximise their output by using higher grade feed as idle, inefficient and polluting furnaces are closed as part of a Government crackdown.
Unit cash costs at BHP’s Pilbara iron ore operations fell 3 per cent to $US14.60/t over the year.
The iron ore spot price last week was $US79.93/t, its highest since April 6.