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BHP’s underlying profit jumps 33%, pays record dividend

BHP CEO Andrew Mackenzie

BHP CEO Andrew Mackenzie

21st August 2018

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – Diversified miner BHP has reported a 33% increase in underlying attributable profit for the financial year ended June, as well as a 10% increasing in operating cash flows.

Underlying attributable profit, which excludes one-time gains and losses, was reported at $8.9-billion for the 2018 financial year, compared with the $6.7-billion in 2017, while operating cash flows increased from $16.8-billion to $18.4-billion.

The underlying profit fell short of the $9.24-billion that the market estimated, according to Reuters. Including one-time charges, the group’s profit fell by 37% to $3.7-billion.

Free cash flow for 2018 reached $12.5-billion, the second consecutive year above the $12-billion mark.

“Our relentless focus on safety and productivity has released additional volumes across the chain, with 8% volume growth for the year. Our balance sheet is strong, with net debt now at the low end of our target range, and our investment plans on track across iron-ore, copper, coal and petroleum,” BHP CEO Andrew Mackenzie said on Tuesday.

Underlying earnings before interest, tax, depreciation and amortisation (Ebitda) from continuing operations reached $23.2-billion in 2018, up from $19.3-billion, on the back of higher commodity prices, increased volumes, and one-off items more than offsetting the impacts of higher costs, unfavourable exchange rate movements, and other net movements.

“We have started the new year with the sale of our Onshore US business for $10.8-billion, and once completed, we expect to return the net proceeds to shareholders,” he said.

The board also rewarded shareholders with a record final dividend of 63c a share, which includes an additional 17c a share above the 50% minimum payout policy (equivalent to $900-million).

“Across our dramatically simplified portfolio of tier-one assets, we see this year’s strong momentum carried into the medium term as our leadership, technology and culture drive further increases in productivity, value and returns,” Mackenzie added.

“Our rich suite of options, coupled with our rigorous capital allocation framework will make sure we get the most out of every dollar we invest.”

BHP spent $6.8-billion on exploration and capital expenditure in the 2018 financial year, with the miner expecting to maintain its guidance of below $8-billion a year for both 2019 and 2020, subject to exchange rate movements.

The capital spend will mainly go towards the development of the $3-billion South Flank iron-ore project in the Pilbara, the $2.4-billion Spence growth option at the copper operations in Chile, the $2.1-billion Mad Dog Phase 2 petroleum project in the Gulf of Mexico, and the $216-million spend on the North West Shelf operation.

BHP will also continue the expenditure at the Jansen potash project, in Canada, where the miner is currently excavating and lining the production and service shafts.

However, Mackenzie noted that BHP’s ultimate timing on bringing Jansen into production would depend not only on whether the project made it past the company’s strict capital allocation framework, but also on market demand.

“We do believe some time in the next decade the world will need big new greenfield potash developments, but the timing for that is very unclear. In the meantime we have been very clear that it is in everyone’s interest to line the shafts we are building, and that will take a few years,” Mackenzie said on Tuesday.

He noted that BHP was working on making the project more capital efficient, in order to pass through the capital allocation programme, and was also looking at de-risking the asset by considering a relatively small start-up operation.

In the meantime, the miner is also looking at growth options in its oil and copper portfolios.

“In the medium term we like oil and a commodity and in the longer term we like copper, and although we are having some exploration success in oil and we have quite a number of things we can do to expand copper, given the capability of BHP under the right circumstances having a bit more would be quite a good thing,” Mackenzie said.

GAINS CUT

Meanwhile, BHP has cut its expected productivity gains for the 2019 financial year to around $1-billion, down from the previous guidance of $2-billion over two years to 2019.

The miner said that the changes reflected the divestment of the Onshore US and Cerro Colorado operations, which reduced the productivity gains by some $200-million, as well as a near $700-million reduction on the back of modified assumptions on the pace of the productivity uplift at the Queensland coal operations, over the two year period.

BHP reported ‘challenging’ operating conditions at the Broadmeadow and Blackwater coal mines during the 2018 financial year on the back of geotechnical issues, which forced BHP to push the expected productivity gains from those operations back into 2020.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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