BHP results spell the end of big payouts

BHP, Rio Tinto and Chileanbased copper specialist Antofagasta all announced substantial cuts to their dividends this week. BHP cut its half-year payout from $1.50 to $0.90, Rio cut its final dividend from $4.17 to $2.25, and Antofagasta announced a final payment of $0.505, down from $1.189.

BHP’s “surprisingly poor” results provided the first confirmation of how soaring inflation and weaker commodity prices are hitting earnings, say Leslie Hook and Nic Fildes in the Financial Times. Revenue fall by 16% to $25.7bn and pretax profit by 30% to $10.2bn in the six months to 31 December, compared with the same period a year ago. However, BHP still sounded optimistic that higher Chinese demand – including relaxing an unofficial ban on Australian coal – will boost commodities.

It was inevitable that earnings would decline from a “frothy” 2021 result, says Anthony Currie on Breakingviews. The fact that BHP still cranked out a solid 54% earnings before interest, tax, depreciation and amortisation (Ebitda) margin should give investors comfort that management has “a strong handle on costs that they can control”. CEO Mike Henry is also making mining operations more efficient, as shown by BHP “extending its lead last year as the lowest-cost iron ore producer”. Other reasons to be upbeat include the pending $6bn acquisition of Oz Minerals, which will give it more copper and nickel – metals crucial to the energy transition.

Australian-listed Fortescue Metals also cut its payout, showing that “the era of super dividends paid by the… mining giants is coming to an end”, says Emma Rapaport in the Australian Financial Review. Miners face “cyclical challenges”, while also needing to invest in “futurefacing commodities” if they want to ensure their longterm success. They hope these investment will make them growth businesses that the market will reward with higher valuations, but for now it must lead to lower dividends, especially since they are looking to sell off or demerge their high cashflow fossil-fuel divisions.