BHP, the world’s biggest mining company, announced a record $5.1bn interim dividend as half-year profits hit a seven-year high on the back of surging prices for its most important commodity, iron ore.
Shareholders in the Anglo-Australian company will receive a payment of $1.01 a share, up from $0.65 this time a year ago, after what its chief executive Mike Henry described as “very strong” results in spite of the challenges posed by Covid-19.
“It reflects our underlying performance and confidence in the outlook,” said Henry, who took the helm of BHP just over a year ago.
Under its dividend policy BHP pays out at least 50 per cent of underlying attributable profit to shareholders. Like its rivals Anglo American, Rio Tinto and Vale, it has benefited from surging 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 almost 85 per cent over the past year, hitting a nine-year high of $175 a tonne in December before retreating.
If iron ore and copper — BHP’s other big commodity — hold at current levels analysts reckon net debt will fall significantly below the company’s $12bn-$17bn target by the end of its fiscal year in June, paving the way for another bumper payout.
“If commodity markets stay strong, as we expect, a larger capital return will be likely with full-year results in August,” said Jefferies analyst Christopher LaFemina.
Henry said BHP would be “quite deliberate” in terms of what the “best form extra returns to shareholders should take”.
“We still have four and half months to go so I don’t want to get too far ahead of myself. But having said that the point you make about markets looking pretty healthy at the moment is correct,” Henry said in an interview with the Financial Times.
BHP is the first of the major mining houses to report results and its figures set the scene for what should be a strong reporting period. Some big banks such as JPMorgan and Goldman Sachs believe commodities are in the first leg of a new bull market fanned by government spending on green infrastructure and job creation.
Shares in BHP have surged more 130 per cent from their pandemic lows in March, and it recently overtook Royal Dutch Shell and Unilever as the biggest company in the UK with a market capitalisation of $170bn.
In its results statement, BHP said underlying attributable profit — the measure followed by analysts and investors — rose 16 per cent to just over $6bn in the six months to December on revenue of $25.7bn. Net debt dropped 7 per cent to $11.8bn.
Iron ore was the main driver of underlying earnings, contributing almost 70 per cent of the total but BHP’s coal division slumped to a loss because of China’s unofficial ban on Australian imports of the fossil fuel.
The company’s statutory profit for the period was $3.9bn as it took $2.2bn of impairments and charges, including a $1.2bn hit against the value of its Australian thermal coal business.
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 kept under “regular review” but his current priority was one of “managing the risks of Covid-19, driving the performance agenda, and creating options in future-facing commodities”. He also cited BHP’s “leadership” in environmental, social and governance issues.
BHP’s dual-listed company structure is a result of the merger in 2001 of BHP Ltd and Billiton Plc.
Asked if commodity markets were in the early stages of a new supercycle — often described as a prolonged period of surging demand that outstrips supply — Henry said the shift to cleaner forms of energy would require more raw materials from companies such as BHP.
“The extended outlook for commodities . . . remains quite healthy and constructive,” he said.