JOHANNESBURG (miningweekly.com) – Higher commodity prices have helped the world’s largest diversified mining group to report a 25% increase in its underlying attributable profit and to reward shareholders with higher interim dividends.

Melbourne-headquartered BHP grew its underlying attributable profit from $3.24-billion in the six months ended December 2016 to $4.05-billion in the half-year ended December 2017, or from 61c a share to 76.1c a share.

However, the underlying first-half profit missed analysts’ forecasts, with BMO Capital Markets pointing out that the result was 4% below its expectation and 7% below that of consensus forecast. The miss was largely as a result of higher costs.

The group reported an exceptional loss of $2-billion, which lowered its attributable profit by 37% to $2-billion. The exceptional loss relates to US tax reform, which BHP previously flagged, and to the Samarco dam failure. BHP booked an exceptional loss of $210-million in relation to the Brazil dam failure.

Underlying earnings before interest, taxes, depreciation and amortisation (Ebitda) increased by 14% year-on-year to $11.2-billion and the group reported an underlying Ebitda margin of 53% in the six-month period.

“Higher commodity prices and a solid operating performance delivered free cash flow of $4.9-billion. We used this cash to further reduce net debt and increase returns to shareholders through higher dividends,” CEO Andrew Mackenzie said on Tuesday.

The board had determined to pay an interim dividend of 55c a share, which includes an additional amount of 17c a share above the 50% minimum payout policy, taking the total interim dividend payout to $2.9-billion. The interim dividend is up 38% on the 40c-a-share dividend declared a year earlier.

Net debt was reduced by $900-million from June 30, 2017, to $15.4-billion by December 31, placing the group close to its debt target range of $10-billion to $15-billion, which it should achieve before year-end. The mining giant said it was now targeting the lower end of the debt range, as a result of the elevated commodity prices.

BHP also maintained its productivity guidance of $2-billion in gains by June next year, despite recording a negative movement in productivity of $496-million.

“We are on track to deliver further productivity gains by the end of the 2019 financial year, as we secure improvements in both operating and capital productivity, aided by smarter technology application across our value chain,” Mackenzie said.

Capital and exploration expenditure increased by 6% year-on-year to $2.9-billion in the December half-year. The group’s guidance for capital and exploration expenditure is $6.9-billion for the current financial year and will remain below $8-billion a year for the 2019 and 2020 financial years.

BHP currently has four major projects under development with a combined budget of $7.5-billion over the life of the projects. This budget is allocated to the Spence Growth Option in Chile ($2.46-billion), North West Shelf Greater Western Flank-B project, in Australia ($314-million), the Mad Dog Phase 2 project in the US Gulf of Mexico ($2.15-billion) and the Jansen potash project, in Canada ($2.6-billion).

“Our capital expenditure programme remains focused on high-return, low-risk development opportunities in commodities where we see greatest potential,” Mackenzie affirmed.

The group last year deferred a multi-billion dollar investment in the Jansen project and also announced that it would sell its US shale business, as it bowed to pressure from investor groups over its strategy.