BHP Billiton turns corner boosted by higher commodity prices and cost cutting
Company’s net debt is down by 23% to $20.06bn at the end of December
MINING giant BHP Billiton returned to profitability in the six months to end December, benefiting from higher commodity prices, cost cutting measures and roughly a $6 billion (R78.43bn) in one-off charges, mainly write downs against US energy assets.
The mining firm reported a net profit of $3.2bn for the period as compared with a loss of $5.67bn reported a year ago, as it benefited from an upswing in commodity prices, which boosted mining firms globally.
Iron ore almost doubled in value in 2016 and prices for natural resources, including coal and crude oil rose.
Chief executive Andrew Mackenzie said: “This is a strong result that follows several years of a considered and deliberate approach to improve productivity and redesign our portfolio and operating model.
“Our steadfast commitment to this plan has positioned us to take full advantage in a period of higher prices with underlying earnings before interest, tax, depreciation and amortisation (Ebitda) up 65 percent to $9.9bn.”
Rebalance
He added: “We are confident in the long-term outlook for our commodities, particularly oil, with markets expected to rebalance in the near-term, and copper where we expect a deficit to emerge in the early 2020s.”
Despite the improvement in commodity prices, BHP aimed to improve the efficiency of its operations and reduce debt.
BHP Billion said its net debt was down by 23 percent to $20.06bn at the end of December, reduced from $26.1bn in 2015.
The group said it was on track to meet a target for $1.8bn in productivity gains in the year ahead, excluding any impact from industrial action at its Escondida copper mine in Chile.
The underlying Ebitda of $9.9bn were 65 percent higher than the underlying Ebitda of $5.99bn as compared to 2015.
A strong performance in underlying basic earnings per share was reported in the current period, gaining 692 per- cent to 61 cents a share as compared to 7.7c a share recorded a year earlier.
The strong showing has allowed the company to look for more earnings potential in the future.
The group said it is currently progressing trials in the Black Hawk, testing the potential for staggered wells to increase recovery.
Early results
“We expect early results of these trials to be known during the September 2017 quarter. These trials, combined with our improved productivity, are significantly adding to our economic well inventory that can generate a minimum 15 percent internal rate of return at $50 per barrel,” the group said.
The company expects cap- ital and exploration expenditure to be $5.6bn for the 2017 financial year and $6.3bn in the 2018 financial year, reflecting an increase in exploration spend in both years.
The group declared an ordinary dividend of US40c a share, up by 150 percent as compared with 16c a share declared in 2015.
Mish-al Emeran, an equity analyst at Electus Fund Managers, said the results beat market expectations.
“Of particular note was the free cash flow generation, leading to a significant reduction in net US debt to $20bn and the interim dividend of US40c per share,” said Emeran.
He added: “BHP Billiton has been able to extract productivity gains from a quality portfolio of assets with favourable cost profiles and has the potential to deleverage faster if these relatively higher commodity prices are sustained.”
BHP shares rose 1.03 percent on the JSE yesterday to close at R229.06.