Interactive Investor

Miners BHP and KAZ standing firm through Covid-19 crisis

18th August 2020 14:56

Graeme Evans from interactive investor

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Two mining stocks are booming during the pandemic, but BHP boss warns of second-wave perils.

BHP Group (LSE:BHP) shares were knocked from their upward path today as disappointing full-year results and a smaller dividend provided a reality check for FTSE 100 index investors.

The shares have doubled in value since March amid hopes that Chinese support for the country's steel industry will prop up iron ore prices and demand following the shock of Covid-19.

BHP sounded a note of caution about the recovery potential today, with chief executive Mike Henry braced for continued near-term uncertainty and the prospect that a second wave of the pandemic will weigh on the demand outlook for 2021.

He added:

“We expect most major economies will contract heavily in 2020, China being the exception. Recovery will vary considerably by country.”

Henry said that BHP's diversified portfolio of assets, which includes copper, coal and nickel, had enabled the company to generate robust cash flows and keep debt towards the lower end of its targeted range, despite the current uncertainty.

Underlying profits for the year to June 30 fell by just 1% to $9 billion (£6.8 billion), although this was short of the $9.4 billion expected in the City beforehand. Its final dividend of 55 cents a share was down from 78 cents a year earlier but still well above its targeted 50% pay-out ratio.

The award brought the dividend for 2019/20 to $1.20, the third year in a row that BHP has returned over $6 billion to shareholders.

The high cash returns for shareholders follow a period in which BHP has focused on portfolio simplification, cash generation and capital discipline.

Shares fell 2% to 1,810p in a session when other top flight mining stocks were higher, with Anglo American (LSE:AAL) up 2% and Rio Tinto (LSE:RIO) 1% stronger. Rio recently beat forecasts with its half-year results, including a 3% hike in its interim dividend after strong China demand helped it to report a 3% increase in iron ore shipments.

Shares in copper miner KAZ Minerals (LSE:KAZ) held firm at 578p in the FTSE 250 index after the Kazakhstan-based company reported no material disruption to output or sales from Covid-19.

Its first-half copper production increased by 4%, with industry prices benefiting over recent weeks from the combination of increased demand and supply disruptions. KAZ added in today's interim results that the long-term outlook for copper was positive due to a lack of new projects in the pipeline to replace declining output.

Its gold production jumped 25% following higher processing volumes at its Bozshakol open pit mine, while revenues generated from the precious metal were 16% higher on the back of recent strong gains in the value of the safe haven asset.

Chief executive Andrew Southam says:

“Covid-19 risks remain, but the group is on track to achieve its full year production guidance after an excellent performance in the first half."

KAZ declared an unchanged interim dividend of $4 cents a share for the half-year period.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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