BHP Results Quick Hit: $6.6 billion to flow to shareholders as BHP profit hit by lower iron ore, copper price

BHP to pay US90c per share divvy, down 40% on last year’s US$1.50/sh
Payout ratio still marginally above Goldman Sachs prediction of 65%
BHP’s realised iron ore, copper prices down from a year earlier; offset by higher coal, nickel prices

BHP (ASX:BHP) will tip $6.6 billion into the pockets of shareholders in the form of a US90c per share ordinary interim dividend, its fifth highest in history, as its profit fell 32% to US$6.457 billion.

The result was largely impacted by a 16% fall in revenue from US$30.527b in the first half of FY22 to US$25.713b in the first half of FY23, with the payout a 40% fall on last year’s US150c per share offer.

Underlying EBITDA fell 28% to US$13.23b, with profit from BHP’s operations dropping 27% to US$10.833b despite a record production year at its iron ore operations in the Pilbara and record prices for thermal coal.

The numbers were broadly in line with consensus estimates, with BHP’s payout ratio of 69% slightly above Goldman Sachs’ 65% prediction. FY22’s full year payout ratio came in at a haughty 77%.

It had been expected major miners would tighten their belt in the face of slower earnings and rising cost, with BHP’s reporting an effective inflation rate across the group in the half of 12%.

Its costs in the first half in its WA iron ore operations came in above guidance, while BHP adjusted cost guidance up at its NSW Energy Coal ops in the Hunter Valley at its operational review last month.

Positive on China

BHP’s realised iron ore price averaged US$85.46/t through the first half, down from US$113.54/t a year earlier (-25% YoY), with copper prices (US$3.49/lb) also 19% lower year on year.

That was offset by a 157% lift in thermal coal prices, 3% rise in met coal realised prices and 24% lift in nickel metal, albeit on much lower volumes than its other divisions.

In a nod to its increasing interest in battery metals however, copper drew the largest share of BHP’s exploration budget, accounting for US$61m of its total spend of US$156m against US$34m of a US$110m outlay in the first half of FY22.

While prices for iron ore and copper lagged through the latter part of last year, BHP boss Mike Henry struck a bullish tone on commodity demand in the second half of FY2023.

“We are positive about the demand outlook in the second half of FY23 and into FY24, with strengthening activity in China on the back of recent policy decisions the major driver. We expect domestic demand in China and India to provide stabilising counterweights to the ongoing slowdown in global trade and in the economies of the US, Japan and Europe,” Henry said.

“The long-term outlook for our commodities remains strong given population growth, rising living standards and the metals intensity of the energy transition, including for steel making raw materials.”

Also acknowledging the death of rail yard technician Jody Byrne in a shunting incident on February 7, Henry described the first half dividend as strong, while confirming BHP’s intention to sell its Daunia and Blackwater coal mines in Queensland, part of the BMA JV with Mitsubishi.

“BHP has today announced a strong first half dividend of 90 US cents per share, on the back of solid operating performance. During the half, we delivered well on the production front, with Western Australia Iron Ore posting another record half. BHP remains the lowest cost major iron ore producer globally. We continued to make strong progress on executing our strategy, including the development of growth options,” Henry said.

“Significant wet weather in our coal assets impacted production and unit costs, as did challenges in securing sufficient labour. Inventory movements during the half contributed to costs, including the planned draw-down at Olympic Dam after inventory built up during the smelter refurbishment last year. We expect these factors to abate in the second half and for unit costs to fall, in line with revised guidance.

“Jansen Stage 1 in Canada is on track for first potash production in late calendar year 2026, and we have accelerated Stage 2 studies. In Western Australia, we are progressing studies to develop options to lift iron ore production to 330 million tonnes per year, supported by our industry leading cost position.

“We are seeing ongoing positive exploration results from Oak Dam, which provides growth potential for our copper business in South Australia. Our offer for OZ Minerals received unanimous support from their Board ahead of consideration by their shareholders. In Queensland, together with our joint venture partner, Mitsubishi Development Pty Ltd, we have initiated a process to divest the Daunia and Blackwater mines.”