Bumper payday for BHP investors
Mining behemoth BHP is rewarding shareholders with the biggest dividend in its history after booking a surge in half-year underlying profit, as record shipments from its flagship iron ore mines in Western Australia coincide with high prices for the steelmaking commodity.
Underlying profit for the six months to December 31 rose 16 per cent to $US6.03bn ($A7.73bn), while net debt fell 7 per cent to $US11.83bn ($A15.16bn).
Chief executive Mike Henry said it was a strong set of results, with record copper processing at its epic Escondida project in Chile contributing to the powerful operational performance.
"Our operations generated robust cash flows, return on capital employed increased to 24 per cent and our balance sheet remains strong with net debt at the bottom of our target range," Mr Henry said.
The board declared a record interim dividend of $US1.01 ($A1.29) per share, bringing BHP's shareholder returns to more than $US30bn ($A38.45bn) over the past three years.
Analysts at wealth management group Ord Minnett said that was a surprisingly high dividend payout ratio of 85 per cent, materially beating consensus expectations of 65 per cent.
"It seems the board were more confident about the outlook than what the street expected in terms of the dividend (essentially all free cash flow has been paid out)," Ord Minnett said.
Indeed, Mr Henry said the outlook for global economic growth and commodity demand remained positive, "with policymakers in key economies signalling a durable commitment to growth and signalling ambitions to tackle climate change".
"These factors, combined with population growth and rising living standards, are expected to drive continuing growth in demand for energy, metals and fertilisers," he said.
Moody's Investors Service vice-president Matthew Moore said the results, underpinned by iron ore earnings growth, were credit positive.
"Copper also contributed to earnings growth on the back of higher prices as well as record throughput and reduced unit costs at Escondida," Mr Moore said.
"The strong growth in iron ore and copper earnings more than offset weaker contributions from coal and petroleum."
Iron ore prices have soared from about $US80 per tonne as the global pandemic took hold early last year to eclipse $US170 per tonne in recent months and are around $US160 per tonne.
Mr Moore said iron ore prices would likely moderate but still prove lucrative to BHP over the next 12-18 months.
"The diversified miner also has a robust cost and production profile and will benefit from price support across its other major commodities as global growth recovers from the pandemic," he said.
Mr Moore described BHP's balance sheet as strong and liquidity as excellent.
"Its solid free cash flow generation and conservative financial position provide good capacity to accommodate increased shareholder returns as well as potentially higher capital spending as it approaches final investment decisions on the large Scarborough LNG and Jansen potash projects," he said.
The miner expects to make a final investment decision on the stalled Jensen project in Canada in the middle of this calendar year, while the similarly long-awaited Scarborough project off Western Australia will head to the final investment decision stage in the second half of this calendar year.
Originally published as Bumper payday for BHP investors