The nation’s biggest miner, BHP, has expressed growing confidence in the outlook for Australian energy and metals exports as world governments embark on commodity-intensive infrastructure programs to repair their battered economies and accelerate decarbonisation goals.
Even as souring diplomatic tensions have led to China black-listing Australian coal imports, BHP delivered a record-breaking $US1.01-a-share interim dividend payout on Tuesday amid booming prices for iron ore and a brighter global economic outlook.
BHP chief executive Mike Henry cited strong operational performance for the half-year to December 31 and optimism about future commodity demand as COVID-19 vaccines are deployed as reasons for prompting the higher-than-expected $US5 billion return to shareholders.
“Our outlook for global economic growth and commodity demand remains positive, with policy-makers in key economies signalling a durable commitment to growth and signalling ambitions to tackle climate change,” Mr Henry said.
“These factors, combined with population growth and rising living standards, are expected to drive continuing growth in demand for energy, metals and fertilisers.”
Massive economic stimulus programs post-COVID-19 have been fuelling robust steel demand in China at the same time as disruptions are affecting rival iron ore suppliers in Brazil. BHP’s underlying half-year profit jumped 16 per cent driven by a boom in the price of iron ore which rose from $US78 a tonne to $US103 in the half-year and has more recently touched $US170.
BHP also believes demand for steel and other commodities will be supported by nations tying green-energy initiatives with post-lockdown stimulus programs. Nickel and copper would be increasingly required to manufacture electric batteries, Mr Henry said, while steel was needed for wind turbines and carbon-capture and storage infrastructure.
“The energy transition that the world must effect will ultimately be relatively commodity-intensive … and will increase demand for many of the commodities BHP produces,” he said.
Plato Investment portfolio manager Peter Gardner said BHP’s confidence in the global economic recovery and low debt put it in a strong position to “maintain those high dividends going forward”.
“We thought it was a good result, a solid result, in terms of their profit,” Mr Gardner said. “It’s good to see management returning more of that cash to shareholders.”
Most analysts had expected BHP to report a $US6.3 billion underlying profit for the six months to December 31. Its statutory profit of $US3.9 billion was 20 per cent lower than the same time last year after BHP announced $US2.2 billion in writedowns including on the value of its thermal coal mines in New South Wales and Colombia amid the worsening global outlook for coal.
In a bid to clean up its portfolio, BHP has been seeking to offload its thermal coal mines and some of its coking coal mines. BHP said it was assessing demergers and trade sale opportunities.
The price of BHP’s thermal coal – used in power generation – has collapsed 25 per cent to $US44 a tonne amid the lingering shock of COVID-19 lockdowns curtailing energy use and the escalation of China’s bans on Australian coal imports weighing on the market.
As the world’s most carbon-intensive energy source, coal is also the focus of growing concern among investors and governments over its contribution to global warming.
Mr Henry said the Australia-China trade tensions were negatively impacting revenues in BHP’s coal businesses, but, so far, the company had been able to find new buyers for all its product.
“The ban on Australian coal imports into China has hurt, and you see that impacting on returns in the coal business,” he said. “We’ve always been strong advocates for free trade, we are hopeful that the world will get onto a more positive trajectory.”
BHP was the first of Australia’s major miners to report earnings this week, with rivals Rio Tinto and Fortescue also expected to post profits boosted by elevated iron ore prices.
BHP shares closed up 2.61 per cent to $46.94.
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Source: Thanks smh.com