BHP profits have jumped and the company will pay out a record dividend but could revise its outlook downward as global uncertainty weighs on commodity demand.
BHP’s interim dividend increased to 65 US cents per share – its second-highest dividend on record, and 10 cents higher than the last – as half-year profits surged 29 per cent to US$4.9 billion off the back of higher iron ore prices and “solid operating performance”.
“BHP is in good shape,” said CEO Mike Henry.
“We have passionate and committed people hungry to perform. We have brought together high-quality assets in a simple portfolio that allows us to create value at scale. Our balance sheet is strong, ad we have embedded a capital allocation framework which drives discipline and better decisions.”
BHP also recorded an exceptional loss of US$318 million due to the cancellation of power contracts as part of a shift towards 100 per cent renewable energy at its Escondida and Spence copper mines in Chile, as well as costs associated with the Samarco dam failure in 2015.
But while Mr Henry remains “convinced about the positive underlying fundamentals of commodities”, the company flagged the possibility of a heavy hit from COVID-19 as China’s already slowing economy begins to feel the full impact of the epidemic.
“If the viral outbreak is not demonstrably well contained within the March quarter, we expect to revise our expectations for economic and commodity demand growth downwards,” the report reads.
“This caveat applies, to varying degrees, across our portfolio and we will continue to monitor.”
China has experienced a substantial decrease in demand for oil as the quarantine weighs heavily on air travel and transport, but BHP is optimistic about the long-term outlook and believes it is underpinned by “resilient demand natural field decline in supply”. But COVID-19 could also be something of a mixed blessing for BHP, with demand for minerals likely to bounce back as China takes steps to maintain growth.
“The trade war and the coronavirus outbreak [have] put the Chinese economy under pressure and traditionally the way China stimulates is by investing in infrastructure which requires steel, which requires iron ore, which usually comes from Australia and Brazil,” said Dr Peter Gardner, senior portfolio manager at Plato Investment Management.
“We expect a strong stimulus response from the Chinese government in the wake of these challenges.”
BHP is also monitoring the situations in India – the economy is expected to grow below trend, but BHP expects sustained demand growth long term – and Chile, where the process of arriving at a new constitution is likely to introduce high levels of uncertainty into decision-making in both the public and private spheres.