Goldman Sachs analysts predict Australia’s three biggest miners will stuff over $18 billion in shareholders’ pockets this month, but warn February’s results season could be the start of a pullback in dividend payouts as growth and decarbonisation spends accelerate.

The investment bank’s Aussie mining bulls Paul Young, Hugo Nicolaci and Caleb Heiner told clients in a note they expect Rio Tinto (ASX:RIO) to generate full year EBITDA of US$26.8n and profit after tax of US$12.9 billion with a payout ratio of 75% and full year divvie of US464cps.

That is equivalent to ~US$7.5b and $10.7b Aussie.

BHP (ASX:BHP) is expected by Young et. al. to generate half-year earnings of US$13.7b, compared to consensus of US$14.3b, with the bank’s analysts expecting its impending purchase of OZ Minerals (ASX:OZL) could lighten its payout ratio to 65% of NPAT at US88c, equivalent to US$4.46b or $6.4b.

Meanwhile Fortescue Metals Group (ASX:FMG) is expected to deliver earnings for its record production half year of US$4.5b (US$4.4b consensus) and NPAT of US$2.5b (US$2.4b cons.) with a dividend payout at 70% of NPAT at US56c, equivalent to US$1.72b or $2.47b Aussie.

All three would be materially lower than the same period in 2021-22, when Rio paid out US$16.8 billion over its half year, full year and special dividends after generating a record US$21b profit. BHP paid out US$1.50 per share at its half year dividend in FY22 and FMG paid US86c.

GS thinks earnings will come down 25% on average across the Australian bulk mining and steel sectors on record earnings in FY21-22.

But it could be time dividend payout ratios finally begin to slide after a big focus in recent years across the sector on shareholder returns.

“Outside of the earnings print we think these results will be the start of reduced div payouts for the major diversified miners due to increased growth & decarbonisation capex and also increased M&A activity,” Young, Nicolaci and Heiner think. “Dividend yields still remain attractive though.

“We sit below the street for BHP’s dividend as we think the board we will take into consideration the proposed OZL acquisition and the impact on net debt, and below for FMG on the increased capex outlook.”

BHP, Rio and BHP have collectively guided in the vicinity of US$18b (~$26b) on capex to decarbonise their operations over the next seven years, though much of that will be backended to the latter part of the decade as technologies and studies progress.


Costs on the rise

The other big feature is likely to be inflation, with operating and capital expenditure guidance potentially copping a hit across the industry.

“We also expect updated or newly reported FY23 opex & capex guidance. For 2023 guidance, we expect modest opex increases considering the Dec Q results saw ongoing operating cost inflation, particularly for underground mines and refining & smelting operations and some working capital increase from mostly inventory build,” the analysts wrote.

“We also see upside risk to capex estimates for the sector based on recent project capex increases due to cost inflation (e.g. LYC, OZL updates), and we think capex inflation could surprise to the upside vs. consensus.

“We see capex inflation coming through in particular for BHP (copper growth requirements; ~50% of group capex guidance), BSL (Port Kembla re-line), MIN (Ashburton), AWC (WA refineries & bauxite).”

Meanwhile, GS think the big three ASX coal miners, excluding majority Chinese owned Yancoal (ASX:YAL) will deliver over $1 billion in payouts after thermal coal prices hit a record level in the second half of 2022.

Whitehaven Coal (ASX:WHC) is expected to report EBITDA of $2.65b and NPAT of $1.78b, with over $400 million in dividend payouts (though it is also conducting a major buyback scheme on top of that). GS is predicting a $1.34b EBITDA print and $890m NPAT for New Hope Corp (ASX:NHC), with a projected interim payout of 75cpa ($661.7m).

Dual listed US-Australian met coal miner Coronado (ASX:CRN) is projected to turn a US$780m profit with a US12.5cps dividend, below consensus estimates of US$820m and 16.9cps.

Dividend payouts are also expected at South32 (ASX:S32), Deterra Royalties (ASX:DRR), BlueScope Steel (ASX:BSL), Iluka Resources (ASX:ILU), OZ Minerals, and Mineral Resources (ASX:MIN).

Goldmnan expects lithium and iron ore miner MinRes to deliver underlying EBITDA of $1.033m against consensus of $1.063m, with NPAT of $493m and a 40% interim payout of 104cps, a distribution of around $197 million.

On the ASX today miners lifted with the materials sector up 0.81%, led by lithium stocks Pilbara Minerals (ASX:PLS), MinRes and Allkem (ASX:AKE), with Newcrest (ASX:NCM) up for a third straight day after a $24.5b share takeover approach by US gold giant Newmont was revealed.


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