• BHP announces US$1.75 a share dividend taking full year payouts to a record US$3.25
  • Its US$30.9 billion net profit and US$23.8b underlying attributable profit blows out analysts forecasts, powered by stable iron ore and copper revenues and a boom in coal prices
  • BHP says copper could need US$250 billion of investment by 2030 to meet “plausible demand”

BHP (ASX:BHP) has blown analysts’ expectations out of the water, pulling in a record US$23.8 billion underlying profit and US$30.9b net profit, paying out almost US$9 billion in dividends and setting new targets for growth in its dominant Pilbara iron ore division.

Coming just three weeks after its main rival Rio Tinto (ASX:RIO) dashed investor hopes of a special dividend and cut returns to shareholders in half, BHP announced a final dividend of US$1.75 per share today including a 60c ($US3b) payout on top of its minimum payout rate.

That took its payout ratio to 77% of profit, down from 92% a year earlier, but above analyst forecasts, with total payouts outside of the in-specie distribution of Woodside shares completed after the demerger of its oil and gas business coming to US$3.25 a share.

Consensus estimates had BHP delivering US$22.7b profit and US$3.12 per share in total cash dividends.

BHP, which has maintained its iron ore output under 290Mtpa for a number of years, has also announced medium-term plans to creep production to 300Mtpa, with longer term designs of hitting the 330Mtpa capacity it boasts at Port Hedland.


China to remain ‘source of stability’

BHP’s 39% profit lift from US$17.1b a year earlier and 16% rise in underlying EBITDA from US$35.1b to US$40.6b has been powered by strong prices for coal, iron ore and copper.

In the second half of the year there were signs, outside of rampaging energy markets, that commodity demand was slowing as China’s property woes and Covid lockdowns put a dampener on metals demand.

With rising costs from inflation in diesel and more a headache, CEO Mike Henry says China will remain a ‘source of stability’ going forward.

“We expect China to emerge as a source of stability for commodity demand in the year ahead, with policy support progressively taking hold,” he said.

“At the same time, we expect to see a slowdown in advanced economies as monetary policy tightens, as well as ongoing geopolitical uncertainty and inflationary pressures.

“The direct and indirect impacts of Europe’s energy crisis are a particular point of concern.

“Tight labour markets will remain a challenge for global and local supply chains. Waves of COVID-19 infection continue to occur in the communities where we operate, and we are planning accordingly.”

BHP saw revenue fall across its iron ore business by almost US$4b and earnings come off by ~$4.5b in 2022 after the market failed to reach its 2021 highs, but that was offset by coal revenues and earnings rising US$10.4b and US$9.2b respectively, with prices for met and thermal coal up 225% and 271% over the period.

But there are concerns about rising costs, which lifted 13% across BHP’s major mining assets in FY2022, with its flagship iron ore division seeing cash costs up from US$12.98/t to US$15.05/t.

BHP is guiding costs of FY23 of US$18-19/t at WAIO, with costs at its Escondida copper mine rising from US$1/lb to US$1.25-1.45/lb and its BMA coal mines in Queensland up from US$82.64/t to US$90-100/t.

It is guiding capital and exploration expenditure of US$7.6b in FY23 and US$9b in FY24 after spending US$6.1b on continuing operations in FY22.


No mention of OZ, but BHP sees copper ‘disconnect’

BHP made no mention of the elephant in the room in its financial year statements, its $8.4b bid for fellow Aussie copper miner OZ Minerals (ASX:OZL).

But its confidence in the outlook for copper was laid bare in market analytics and economics VP Huw McKay’s half-yearly economic and commodity outlook.

He says a “take-off” of demand from copper intensive and easier-to-abate sectors of the economy are expected to be a key feature of industry dynamics in the second half of the 2020s “if not earlier”.

“Looking even further out, long–term demand from traditional end–uses is expected to be solid, while broad exposure to the electrification mega–trend offers attractive upside,” McKay said.

“Grade decline, resource depletion, water constraints, the increased depth and complexity of known development options and a scarcity of high–quality future development opportunities are likely to result in the higher prices needed to attract sufficient investment to balance the market.”

BHP says in a plausible upside case for demand the industry-wide capex bill to 2030 could reach US$250 billion. We’re nowhere close to spending that, with grade decline alone to knock 2Mt of mined supply out of the market by 2030.

“Yet according to data assembled by Standard & Poor’s, global capex by the majority copper producers among the world’s top 80 mining companies (i.e., excluding diversified operators) is expected to decline between calendar 2022 and calendar 2024,” McKay said.

“Total outlays in 2024 are expected to be roughly half of the peak spending levels of calendar 2014. That is a very substantial disconnect.”


BHP (ASX:BHP) share price today: