No pleasing some investors BHP’s profits may have hit a five-year high on the back of a spike in the surge of iron ore prices to more than six-year highs, helping boost the payout to shareholders to record levels, but the shares fell to their lowest level since February at one stage.
The shares ended at $36.07, down 0.4%, after dipping to a day’s low of $35.64, a six month low.
Shareholders will receive a final dividend of US78¢ ($A1.15) fully franked, taking interim, special, and final dividends up to $3.355 in 2018-19, compared to interim and final dividends totalling $1.58 the previous financial year.
BHP’s underlying earnings for the June year was $US9.4 billion ($A13.9 billion), a bit short of market forecasts closer to $US9.4 billion.
BHP’s Pilbara iron ore business generated $US11.1 billion in pre-tax earnings representing almost half of the company’s gross profits of $23.2 billion.
Revenue for the year edged up 3% to just over $US44 billion as the train derailment and Veronica reduced sales income.
However, from an operational point of view, BHP’s investors would be disappointed with lower production across its key portfolio of commodities, given the big investments the company has made in recent years to improve efficiency.
But that contribution was lower than it should have been because of the impact of the iron ore train derailment last November and then the impact of Cyclone Veronica on production and sales (and costs) in March and April.
Now BHP has quality costs at its Pilbara mines that will last the year, meaning its key Pilbara fines blend will be shipped with an average Fe content of 59.5% instead of 61%. That will see a price discount and lower returns for BHP this financial year.
BHP will not cut production but will maintain output. (that would raise costs at a time when prices are weakening).
The result follows a surge in the price of the steelmaking ingredient iron ore – BHP’s biggest cash generator (like rival Rio Tinto) – which rose nearly 60 percent in the six months to June due to supply outages in Brazil and strong demand for the commodity from Chinese steel mills.
Prices rose to about $US125 a tonne In early July but have now fallen back to around $US88 a tonne.
But the surge from January 25 to June 30 certainly delivered a windfall to iron ore miners such as BHP, Rio, and Fortescue.
“Higher prices and record production from several of our operations contributed to strong operating cash flows,” BHP CEO Andrew Mackenzie said in the company’s earnings release.
“We used that cash to invest in attractive growth projects, advance our exploration programs and increase returns to shareholders.”
BHP’s result included exceptional losses, the largest of which related to the 2015 tailings dam burst at the Samarco iron ore site in Brazil which killed 19 people and saw millions of tonnes of mine waste pour into the Doce River.
Exceptional losses associated with the Samarco mine dam disaster in 2015 eased to $US818 million from $US5.2 billion a year ago.