Tuesday, August 16, 2016

BHP Profit Tumbles 81% on Collapse in Commodity Prices

BHP Billiton Ltd., the world’s biggest mining company, reported full-year underlying profit declined 81 percent for the worst result since 2001 after raw materials tumbled to a 25-year low in January.
Underlying profit was $1.2 billion in the year ended June 30 from $6.4 billion a year earlier, Melbourne-based BHP said Tuesday in a statement. That beat the $1.04 billion average estimate among 19 analyst forecasts compiled by Bloomberg.
BHP follows rival Rio Tinto Group in posting lower profits after prices, including of its top earner iron ore, plunged to about half their 2011 peak on oversupply and slower growth in China, the biggest commodities buyer. The result will likely mark a low point for BHP, with a rebound in prices and higher output to lift profits this fiscal year, according to Shaw and Partners Ltd.
“I’m confident this is the earnings nadir,” Peter O’Connor, a Sydney-based analyst with Shaw and Partners Ltd., said by phone after the result was announced. ”The direction for earnings from here is higher.”
BHP has advanced 13 percent in Sydney trading since touching an 11-year low on Jan. 21. The 98-member Bloomberg World Mining Index has advanced about 40 percent after commodities surged the most in the first half since the 2008 financial crisis as China’s economy stabilized and policy makers backed growth.
BHP shares added 1.1 percent as of 8:51 a.m. in London.

Long-Term Outlook

“While commodity prices are expected to remain low and volatile in the short to medium term, we are confident in the long-term outlook for our commodities, particularly oil and copper,” Chief Executive Officer Andrew Mackenzie said in the statement. BHP will make investment decisions on the Mad Dog 2 conventional oil project and a copper growth program at the Spence operation by the end of 2017, he said.
BHP recorded a full-year net loss of $6.4 billion, the producer said in its statement. That’s the first annual loss since the company was formed in the 2001 merger of BHP Ltd. and Billiton Plc, according to data compiled by Bloomberg. Underlying profits were the lowest since fiscal 2001, according to the data.
The producer booked after-tax charges of $7.7 billion related to the deadly dam spill at its Samarco iron ore joint venture in Brazil, global tax issues and against its U.S. shale assets amid weaker oil prices, BHP said. The Nov. 5 dam collapse in Brazil’s Minas Gerais state released billions of gallons of mining waste through a valley, leaving as many as 19 people dead and hundreds more homeless.
Samarco won’t have necessary approvals to restart operations this year and the results of an external investigation into the incident will be available in the next few weeks, BHP said in its statement.
BHP’s full-year dividend fell 76 percent to 30 cents a share, under a policy set out in February that links the payment to profits. Capital expenditure fell 42 percent to $6.4 billion and will be cut further to $5 billion in the current fiscal year, BHP said.
The average prices that BHP receives for every key product fell in the past fiscal year, it said in the statement. Oil prices plunged 43 percent in the 12 months ended June 30, as iron ore declined 28 percent and copper dropped by 23 percent.

China Outlook

While iron ore has led the commodity price rebound in 2016 because of a pick-up in construction in China, Rio warned this month there’s uncertainty around demand and said market conditions remain volatile and challenging. Rio this month reported a 47 percent drop in profit.
China’s growth rate has stabilized and the nation’s government is expected to remain supportive, as it reduced excess capacity in coal and steel, while boosting the role of consumer demand and maintaining support for employment, BHP said in its statement
The Bloomberg Commodity Index, a measure of returns from 22 raw materials, has risen about 8 percent this year after posting its best three months since 2010 in the second quarter. The World Bank forecasts commodities will rebound next year after hitting the bottom of the cycle. Citigroup Inc. last month said it’s bullish commodities for 2017.

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