BHP reported half year revenue of $30.5bn, up 27% from last year. That reflects revenue growth across all segments, with Coal particularly strong. As a result, excluding contributions from the Petroleum business, the group posted underlying cash profits (EBITDA) of $18.5bn, up 33%.
In January 2022, the group completed the planned unification of its dual listed structure.
The board announced a record interim dividend of $1.50 per share.
The shares were broadly flat in early trading.
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Our view
Iron Ore and Copper, which make up 80% of BHP's sales, have seen prices come down from their soaring highs last year. But it's still a very good time to be a miner. Prices on average were higher and the energy crisis meant the Coal sector boomed.
Part of the fall from the highs seen last year for Iron Ore was relating to the use of steel in China. Policy changes meant demand for building materials fell, of which Iron Ore is a key ingredient. The good news is that demand now seems to be stabilising and as we move further into China's new 5-year plan, infrastructure spend should help prop up steel demand.
Something to keep in mind is ore can only be dug-up once, and new mines are needed to replace reserves as they're run down. Potash, a naturally occurring mineral fertiliser, is a little different to the group's other assets - since farmers need it regardless of the economic climate.
For that reason, we've been closely watching progress on the group's new potash mine, plans for which have been in the works for years. It's promising to hear the investments coming along nicely. The first stage of the project is nearing completion, which involves excavating and preparing the mining shafts - at a cost of nearly $3bn. That's meant the larger second stage can begin, with a cost of $5.7bn it involves the building of the potash mine itself. This is a real growth area for the business, and a strategic shift that should provide shelter from more cyclical commodities the group currently relies on.
But we're not expecting to see any output until at least 2027 and it's a hefty investment that means execution risk is high.
Far more important to investors in the short term is the merger of BHP's petroleum business.
The petroleum deal, set to complete in the second quarter of 2022, will see BHP shareholders handed new shares in Australian listed oil & gas group Woodside. The deal looks promising, with sizeable cost savings and a clean break from the out-of-favour oil & gas industry. With petroleum only accounting for a small portion of total revenues, the core business will be largely intact. And after completion shareholders will have a choice as to whether they want to keep a stake in the petroleum businesses or not.
The recently completed unification of the corporate structure in Australia is more nuanced. Management point towards increased corporate flexibility as a major benefit of unification, making mergers & acquisitions easier, not least in the case of the Woodside deal. Practically speaking the unifications shouldn't affect shareholders too much, with BHP maintaining a London listing, but it does mean BHP would likely fall out of the FTSE 100.
As things stand BHP is paying out 78% of earnings as a dividend, which we think in a highly cyclical industry is a sensible approach. With net debt much reduced and current huge free cash flows, shareholder returns can remain generous if the group chooses. It should be remembered though that all dividends are variable and not guaranteed.
There's also the option for further M&A deals in the future. With net debt well below the groups target levels it frees up the option to go out and spend.
Fundamentally BHP's investment case remains unchanged. Low cost, high margin assets mean the bulk of its mines should remain profitable in most market conditions. However, shareholders returns will likely rise and fall with global commodity markets and there are no guarantees.
BHP key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Half Year Results
Copper revenue rose 20.2% to $8.5bn as the average price of copper rose compared to last year, although these have come down slightly since the end of last year. That more than offset a drop in volumes as ore grade declined at the largest mine, Escondida. Unit costs increased 43% at the Escondida mine, the majority expected to be one-off. Underlying cash profits for the Copper segment rose 14.3% to $4.3bn.
In Iron Ore, revenue increased to $15.8bn from $14.1bn as commodity price rises again provided a boost. Underlying cash profits grew 8.9% to $11.2bn. Volumes were relatively stable, but cost increases due to inflation and COVID dented profits.
Coal revenue saw the largest increase, up 147% to $5.4bn. That was almost entirely down to a big increase in the sales price for the materials. Volumes declined due to weather conditions at the larger Queensland Coal mine. Underlying cash profits came in at $2.6bn, improving from a loss last year.
Capital & exploration expenditure came in at $2.9bn, with the full year expected to be $6.5bn. The Jansen potash mine is 98% complete. Free cash flow, inclusive of the petroleum business, was 88% up at $9.7bn
Net debt at 31 December 2021 was $6.1bn, within the new target range of $5-$15bn.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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