BHP Results: Big Australian becomes latest major to see profits hit as mining's boom time tumbles

BHP paying out $6.4 billion after a big drop in profit on higher costs and lower commodity prices

Revenue fell 17% to US$53.8b in FY23, with underlying EBITDA down 31% to US$28b

BHP’s inflation running at 10%, with labour expected to be sticky in FY24

BHP (ASX:BHP) has followed its biggest rival Rio Tinto (ASX:RIO) in posting a massive drop in profit, sliding 58% to US$12.9 billion as lower commodity prices and inflation bit.

Underlying profit was down 37% to US$13.4 billion, but BHP says its final US$4.1 billion ($6.4b) dividend payout — US80c per share and a 59% payout — was the third best in its history. Including February’s interim payout, the Big Australian paid out US$1.70 per share, or a total of $13.6b.

Rio cut its interim dividend by a third to $4.3b last month, after a 43% drop in half year profit to US$5.12bn.

BHP’s revenue fell 17% to US$53.8b from FY22’s US$65.1b, while underlying EBITDA slid 31% to US$28b, down from a margin of 65% to a margin of 54%.

That included a 9% lift in costs across its main operations in iron ore, copper and coal, with BHP hit with an effective inflation rate of 10% and flagging inflationary impacts in the labour market will continue into FY24.

BHP lifted its capex 16% as well to US$7.1b, including US$350m on exploration.

Commenting on the results, CEO Mike Henry noted the positioning BHP was doing to focus on commodities leveraged to the decarbonisation narrative.

“The tragic deaths of two of our colleagues during the year have been deeply felt. Our absolute priority remains eliminating fatalities and serious injuries at BHP,” he said.

“Our financial results for the year were strong, underpinned by reliable production together with capital and cost discipline as we managed lower commodity prices and inflationary pressures. Our balance sheet is robust and deliberately positioned to support portfolio growth in commodities the world needs for population growth, urbanisation and decarbonisation.

“In Canada, our investment in potash is progressing at pace with first production at Jansen on track for the latter half of 2026, and we are creating a new copper province in South Australia following the acquisition of OZ Minerals.

“We are investing strategically in new ideas, technologies and countries through exploration and early-stage copper and nickel prospects to capture future growth opportunities.

“We continue to build an inclusive, high-performance culture and a more sustainable business, which are key to our future competitiveness and ability to deliver sector-leading returns.

“Today, more than 35% of our employees are female and we have increased Indigenous employee representation globally. We are taking action to reduce our operational GHG emissions through renewable electricity supplies and supporting the development of electric trucks, trains and light vehicles. As of today, BHP has among the lowest absolute operational GHG emissions of the major miners.”

Chinese, Indian commodity demand ‘robust’

Henry also hinted at the shifting sands of commodity demand, calling out India as a potential growth engine for commodity demand.

“Commodity demand has remained relatively robust in China and India even as developed world economies have slowed substantially. In the near term, China’s trajectory is contingent on the effectiveness of recent policy measures,” he said.

“We expect buoyant growth in India with strong construction activity underpinning an expansion in steelmaking capacity.

“More broadly, there is increased recognition of the importance of critical minerals and strategies across the globe to incentivise investment in supply and demand, which provides opportunities and challenges.”

As flagged at its quarterly production results, BHP’s biggest earner, its WA Iron Ore division, delivered 285Mt on a 100% basis at costs of US$17.79/t (C1 costs US$15.86/t), with FY24 guidance set at 282-294Mt at US$17.40-18.90/t and medium term guidance of more than 305Mt at US$17/t.

Lower prices and higher costs saw underlying EBITDA fall 24% to US$16.7b.

Coal production in Queensland came in at 58Mt on a 100% basis, unchanged year on year, though the roll off of sky high 2022 met coal prices and higher coal royalties which have seen the company suspend capital guidance in the Sunshine State coal assets saw underlying EBITDA in the coal division fall 47% to US$5b.

Its Mt Arthur energy coal mine in NSW saw a 3% lift in output to 14.2Mt, with thermal coal prices up 9% on average to US$236.51/t. After failing to sell the mine last year, BHP is planning to manage it to closure in FY2030.

BHP’s Nickel West division saw production rise 4% to 80,000t, with 77,000-87,000t guided for FY24.

But EBITDA fell 61% to $0.2b, as lower prices for intermediate products against nickel metal, inflation, inventory drawdowns and issues with third party ore, like that delivered by Wyloo Metals owned Mincor Resources, saw costs rise sharply.

Its copper business saw a 9% lift in production to 1.717Mt, with guidance set to lift that to 1.72-1.91Mt in FY24.

Underlying EBITDA fell 22% to US$6.7b alongside a 12% decline in average prices to US$3.65/lb.

BHP sees a small surplus this year or a balanced market, but sees tailwinds for the back end of the decade.

“In the medium and longer term, traditional demand (such as home building, electrical equipment and household appliances) is expected to remain solid while the decarbonisation mega-trend is expected to bolster demand,” BHP said.

“In terms of meeting that demand, we anticipate that the cost curve is likely to steepen
as challenges to the development of new resources (such as societal expectations, decarbonisation and water challenges) progressively increase.

“We anticipate that the industry is likely to enter the final third of this decade with a low inventory buffer, and therefore elevated prices may endure throughout this period.”

Exploration spending across the BHP business lifted from US$256m to US$350m in FY23, up 37%