ii view: miner BHP declares a record interim dividend payment

Returning $7.6 billion to investors and considering climate change under its strategy. Buy, sell or hold? 

First-half results to 31 December

• Underlying attributable profit for continuing operations up 57% to $9.7 billion (£7.2 billion)
• Interim dividend up 48% to $1.50 per share
• Net debt down 49% to $6.09 billion

Chief executive Mike Henry said:

“BHP had a strong first half. We achieved our third consecutive fatality-free calendar year. We mitigated the impacts of Covid-19 and significant adverse weather events to turn in a solid operational performance, particularly from our flagship Western Australian iron ore business.

“BHP is well positioned for the future. We are building on our strong foundations and capital discipline to reshape our business and grow long-term value for shareholders and other stakeholders.”

ii round-up:

Mining mammoth BHP Group (LSE:BHP) today declared a record half-year dividend payment as elevated commodity prices helped adjusted profit for continuing operations climb 57% to $9.7 billion (£7.2 billion).

Over $7 billion will now be paid to shareholders in the form of a $1.50 interim dividend payment. That brings total shareholder returns to more than $22 billion over the past 18 months, according to its chief executive. 

But the results came on a day when Chinese authorises further attempted to quell a rally in the price of iron ore, BHP’s biggest sales generator at over half of total sales. 

BHP shares fell by over 1% in UK trading, although they remain up by more than 10% over the last year. Shares for rival Rio Tinto (LSE:RIO) are down around 9% over that time, while shares for precious metals miner Fresnillo (LSE:FRES) have fallen by just over a third. 

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BHP’s profit outcome proved broadly in line with City hopes, although both the dividend and a near halving in net debt to just over $6 billion were above forecasts. 

In January, BHP completed previously announced plans to unify its corporate structure to realise simplification benefits and enhanced its strategic flexibility. Its shares continue to trade in the UK, South Africa, and the US, but now have their primary listing in Australia.

Along with iron ore, BHP commodities also include copper, nickel (used in batteries), and potash, which is used for fertilisers and coal. 

Average realised prices for iron ore during the half year rose 9% compared to the first half of 2021. Both copper and nickel climbed 30% on the same basis, while thermal coal rose 210% as more and more mining companies look to reduce their exposure given its link to climate change. 

ii view:

Established in 1851, today BHP is a major diversified mining company operating in more than 90 locations across the world. Countries of operation include Australia, the US, Canada, Chile and Brazil. Climate change is now part of its corporate strategy and is assessed under portfolio decisions. 
During 2021, it exited oil and gas operations and strengthened its exposure to farming-required potash. 

For investors, exposure to Chinese economic fortunes warrants consideration. China is its biggest customer, generating almost two-thirds of group sales. Relations between the West and China remain strained, while commodity prices continue to be volatile. Both pandemic and wider economic outlook uncertainty should also not be overlooked. 

More favourably, these latest results underline BHP's commitment to shareholder returns. Forecast future payments leave it on an estimated dividend yield of over 7% (not guaranteed). Portfolio change in favour of climate change commodity beneficiaries continues to be made, while China and Asia more generally remain economic powerhouses. In all, and while some caution looks sensible, income seekers at least are likely to stay put. 

Positives

• Exposure to a diverse portfolio of commodities
• A focus on shareholder returns

Negatives

• Ongoing pandemic uncertainty
• Continuing Western tensions with major customer China

The average rating of stock market analysts:

Strong hold