BHP boss Mike Henry is confident the mining giant will be “resilient” in the face of all potential scenarios over the coming months, despite the company today posting its weakest annual profits in three years – weighed down by plummeting iron ore prices .
In an earnings call with reporters, he argued BHP has posted a “strong set of results” despite underlying profits for the year to the end of June sliding 37 per cent from $21.3bn to $13.4bn.
The company has now slashed it dividend nearly in half to $1.70 per share, down from $3.25 per share the year before.
Henry hopes the company’s expansive portfolio – which includes copper, gold, nickel, and potash – meant the Aussie firm could navigate China’s sluggish economic revival and the West’s hawkish response to inflation.
Both these factors have eaten into demand for iron ore – which is a key ingredient for steelmaking – causing challenges for the world’s biggest miner by market capitalisation.
Over the past year, prices for iron ore, BHP’s top revenue-generating commodity, have retreated from peaks above $165 per metric tonne towards $100 per tonne, as global supply chains calmed following the pandemic.
Meanwhile, inflation has caused BHP’s capital and exploration expenditures to spike 16 per cent over the year to $7.1bn – with the company expecting those costs to rise to $10bn in the next two years.
That is partly due to $1bn per year that BHP will now have to spend on its newly acquired Oz Minerals business, with the company further investing in growth projects such as Jansen pot ash in Canada.
These headwinds have also hit rival Rio Tinto’s production output this year and headline figures.
Despite the cost pressures, Henry told reporters BHP was “running a tight ship, necessary to weather some of the external challenges – including China’s slashed steel production and flagging property sector.
BHP shares were down 0.89 per cent on the London Stock Exchange at close of play today.
BHP awaits China’s policy moves
The London-listed company still expects China to produce more than a billion metric tons of steel this year for the fifth consecutive year, despite cutting its forecast for China’s growth to 5 per cent to 5.25 per cent from 5.75 per cent to 6.25 per cent,
Henry also feared Western demand for commodities has been hampered by hawkish interest rate hikes.
“It is worth noting that combined China and India are expected to represent half of world GDP growth in the year,” he said,
He argued that China is such “a big driver of commodity markets” that its economic drivers influence commodity markets irrespective of how much a company trades with the.
As for the future, he believed that “China’s trajectory is contingent on the effectiveness of recent policy measures” – such as its latest measures to shore up the country’s housing market, with property giant Country Garden on the verge of defaulting.
There are also concerns closer to home, with Queensland’s treasurer warning BHP that its mining leases could be in reviewed if the company does not continue investing in the state.
Cameron Dick told domestic newspaper The Australian that the government would not hesitate to revoke mining tenures being “misused.”
He later revealed to parliament today that firms had to “use or lose” their leases.
In June earlier this year, Henry confirmed the mining giant “will not be investing any further growth dollars in Queensland under the current conditions”.