BHP, the world’s largest mining company, announced a record interim dividend of $ 5.1 billion as half-year profits hit a seven-year high due to soaring prices for its main commodity, ore from iron.
The Anglo-Australian firm’s shareholders will receive a payment of $ 1.01 per share, up from $ 0.65 this time a year ago, after what CEO Mike Henry called “very strong” results despite challenges posed by Covid-19.
“This reflects our underlying performance and our confidence in the outlook,” said Henry, who took over as CEO of BHP just over a year ago.
As part of its dividend policy, BHP pays out at least 50 percent of the underlying attributable profit to shareholders. Like its rivals Anglo American, Rio Tinto and Vale, it benefited from soaring prices for iron ore, the main ingredient needed to make steel.
Aided by China’s seemingly insatiable demand for raw materials as well as its supply disruptions, iron ore has soared nearly 85% in the past year, reaching a nine-year high at 175 dollars per tonne in December before falling.
If iron ore and copper – BHP’s other major commodity – hold at current levels, analysts estimate net debt will fall significantly below the company’s $ 12 billion to $ 17 billion target. here the end of its fiscal year in June, paving the way for another exceptional payment.
“If the commodities markets remain strong, as we expect, a higher return on capital is likely with annual results in August,” said Christopher LaFemina, analyst at Jefferies.
Mr Henry said BHP would be “pretty deliberate” about the “best form of additional return for shareholders”.
“We still have four and a half months left, so I don’t want to step too far. But having said that the point you make about markets that look pretty healthy right now is correct, ”Henry said in an interview with the Financial Times.
BHP is the first of the major mining companies to release results and its numbers set the stage for what should be a strong reporting period. Some big banks such as JPMorgan and Goldman Sachs believe that commodities are in the first stage of a new bull market fueled by public spending on green infrastructure and job creation.
BHP shares have jumped more than 130% from their pandemic low in March, and it recently outpaced Royal Dutch Shell and Unilever as the UK’s largest company with a market capitalization of $ 170 billion.
In its earnings statement, BHP said underlying attributable profit – the metric tracked by analysts and investors – rose 16% to just over $ 6 billion in the six months ending in December for a turnover of 25.7 billion dollars. Net debt fell 7% to $ 11.8 billion.
Iron ore was the main driver of operating profit, contributing nearly 70% of the total, but BHP’s coal division fell to a loss due to China unofficial ban on Australian fossil fuel imports.
The company’s statutory profit for the period was $ 3.9 billion, as it took $ 2.2 billion in write-downs and charges, including a hit of $ 1.2 billion relative to the value of its thermal coal business in Australia.
Tax losses held by its New South Wales Energy Coal unit have previously been cited by management as a barrier to unwinding BHP’s complex dual-listed company structure, which consists of separate companies listed in London and Sydney.
Henry said the DLC was something that was under “regular review”, but that his current priority was “to manage the risks of Covid-19, drive the performance program and create options in the products of the future ”. He also cited BHP’s “leadership” in environmental, social and governance matters.
BHP’s dual-listed company structure is the result of the 2001 merger of BHP Ltd and Billiton Plc.
Asked whether commodity markets are in the early stages of a new supercycle – often described as a prolonged period of growing demand that exceeds supply – Henry said the shift to energy forms cleaner would require more raw materials from companies such as BHP.
“The broader outlook for commodities. . . remains fairly healthy and constructive, ”he said.