Energy Prices Drag As BHP Annual Profit Slips 4%

By Glenn Dyer | More Articles by Glenn Dyer

BHP has trimmed its sales heading into 2020-21 thanks to the weak global economy, uncertain recovery, the continuing blight of COVID-19 and a restructuring of its minerals portfolio to be done.

Commodity price volatility in copper, coal, and oil, the global impact of the coronavirus pandemic and social unrest in Chile, where it operates the world’s biggest copper mine combined to drop BHP Group’s net profit for 2019-20 by just 4% in a result that was better than many analysts had feared it would be.

The mining giant posted a net profit of $US7.96 billion ($A11.03 billion) for the 12 months to June 30.

BHP CEO Mike Henry said in yesterday’s release that the 2019-20 financial year had been challenging, but the company’s operations had generated robust-free cash flow and net debt was at the low end of its target range.

“We expect most major economies will contract heavily in 2020, China being the exception,” he warned. “Recovery will vary considerably by country.

“Our diversified portfolio and high-quality assets position us to continue to generate returns in the face of near-term uncertainty.”

The company will pay a final dividend of 55 US cents a share, down 23 US cents from the final dividend issued last financial year.

That cut dropped the total payout for the year to $US1.20 a share from $US1.33.

Not a huge cut but one which signals the company is not clear on what sort of year 2020-21 will be.

Still, total shareholder returns for the year were $US6.1 billion.

The big news from the earnings report was the confirmation (which first appeared in May) that BHP is seeking to exit thermal coal mining globally and will also offload some of its metallurgical coal mines in Queensland.

Mr. Henry announced the company sought to exit its two BMC low-grade coking coal mines in Queensland, thermal coal mines at Mt Arthur mine in the Hunter Valley, and at Cerrejon in Columbia.

BHP wants to concentrate its coal portfolio on higher-quality coking coals as steelmakers seek to improve blast furnace utilisation and reduce emissions intensity.

“We are moving to concentrate our coal portfolio on high-quality coking coals, with greatest potential upside for quality premiums as steelmakers seek to improve blast furnace utilisation and reduce emissions intensity,” Mr. Henry said on Tuesday.

Its BMA joint venture with Mitsubishi produces hard coking coal increasingly preferred by steel companies in China. It’s a joint venture with Mitsubishi of Japan. The two BMC mines are in the BHP Mitsui Coal joint venture.

BHP also seeks to improve its petroleum portfolio by getting rid of mature assets including the Bass Strait oil and gas field which sparked the changing of the company from an old fashioned Australian steelmaker into a diversified resources company after the first discovery in 1966 with partner Exxon.

BHP’s biggest profit earner was its West Australian Iron ore business which accounted for 65% of its earnings.

The price of the commodity has defied repeated predictions it is overdue for a fall and recently surged above $US120 a tonne driven by robust demand from Chinese steel mills and softer output from other exporters such as Brazil’s Vale due to COVID-19 disruptions.

Profit from commodities such as copper, petroleum, and coal fell because of price falls triggered by weak demand due to the impact of COVID-19 and associated lockdowns.

BHP shares ended at $39.65, down half a percent. In other words, the result and lowered dividend were all priced in.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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