BHP braced for a challenging year

The diversified resources group says it should still generate returns due to its diversified portfolio of high-quality assets.

BHP Group says most major economies will contract heavily this year, with the exception of China. The recovery is expected to be uneven across the countries where it operates. However, it says its diversified portfolio and high-quality assets position it to continue to generate returns despite the near-term uncertainty.

The resources giant reported a 4% decline in attributable profit to $8 billion for the year to end-June as it faced the challenges of Covid-19, social unrest in Chile and volatile commodity prices. The decline in net profit included an exceptional loss related to the impairment of its Cerro Colorado mine in Chile, a provision for the cancellation of power contracts as it shifts towards 100% renewable energy at its Escondido and Spence mines, also in Chile, Covid-19 related costs totalling $348 million and the ongoing impact of the 2015 Samarco dam failure in Brazil.

Underlying attributable profit from total operations fell 1% to $9.06 billion and underlying basic earnings per share came in 2% higher at 179.2c. It said its operations generated robust free cash flow and its balance sheet remained strong, with net debt finishing the year at the low end of its target range. It’s declared a final dividend of 55 US cents, taking its total dividend for the year to $1.20, equivalent to a 67% payout ratio.

Strong production at its West Australia Iron Ore (WAIO), its Caval Ridge, Poitrel and Broadmeadow coal operations and the Escondido copper mine offset the impacts of Covid-19 across its operations, wet weather that affected Queensland Coal and natural field decline in petroleum, leaving copper equivalent production broadly in line with last year. It said output for the year ahead would probably be slightly lower due to impacts from a reduction in operational workforces in copper in response to the Covid-19 pandemic and the continued petroleum natural field decline.

BHP said it would concentrate its coal portfolio on higher quality coking coals that had strong upside potential due to demand from steelmakers, while looking at options to exit Australian coal operation BMC and New South Wales Energy Coal (NSWEC), as well as its investment in the Cerrejón coal mine in Colombia. It planned to increase its investment in copper and nickel, where increasing demand and its capability gave it competitive opportunities.

BHP delivered a strong set of results for the 2020 financial year that reflect the strength, resilience and quality of our people and our portfolio,” CEO Mike Henry said. In a year marked by the challenges of the global Covid-19 pandemic, social unrest in Chile and commodity price volatility, we were safer, more reliable and lower cost.

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