Profit down: A man crossing a walkway bridge to BHP’s headquarters in Melbourne. A leading producer of metallurgical coal, iron ore, nickel, copper and potash, the multinational’s profit falls as it starts the sale of two Queensland coal mines. — AFP
MELBOURNE: Global miner BHP Group reports a steeper-than-expected 32% fall in first-half profit owing to a drop in iron ore prices, sending its shares down.
But despite this, it flagged a brightening outlook in China, its biggest customer.
Over the past year, China’s strict zero-Covid policy has slowed economic activity and reduced demand, causing iron ore prices to fall from lofty levels as miners grappled with rising costs and a tight domestic labour market.
As a result, the world’s largest listed miner reported underlying profit attributable to continuing operations of US$6.6bil (RM29.3bil), down from US$9.72bil (RM43.1bil) a year earlier.
That missed a Vuma Financial estimate of US$6.82bil (RM30.2bil), as earnings from copper and coal came in lower than analysts had expected.
BHP’s giant Escondida copper mine was hit by road blockades in Chile that disrupted mining supply deliveries.
However, its interim dividend of 90 Australian cents (RM3.99) per share, while down 40%, beat Vuma Financial’s estimate of 88 cents (RM3.90).
“We have BHP as a ‘hold’ primarily because their share price is sitting at record highs and they are going to have to do pretty well to justify those levels,” said analyst David Lennox of wealth manager Fat Prophets in Sydney.
The miner said it sees “markedly higher” price floors for some commodities than prior to the Covid-19 pandemic, given the rising marginal cost of production.
“The lag effect of inflation and continued labour market tightness are expected to impact our cost base into the financial year 2024 ,” BHP said, as it logged a US$1bil (RM4.43bil) inflation hit, primarily from diesel costs, for the half.
Analysts at RBC Capital Markets said BHP’s first half was “surprisingly poor, but is a strong indicator of what is still a challenging inflationary environment for the miners”.
The Australian firm also said it expected aggressive global interest rate hikes from last year to slow growth sharply across the developed world.
However, after a difficult first half, the Australian company said China appears to be a “source of stability” for commodity demand as the world’s second-largest economy and top metals consumer reopens and looks to revive its debt-laden property sector.
BHP’s confidence in China’s economy was buoyed by the green shoots it had seen since the start of the calendar year, including new loans, house prices and business sentiment surveys, chief executive officer Mike Henry said.
“There’s a lot there that is giving us confidence that we will see an acceleration in the Chinese domestic economy,” he told reporters on a conference call.
BHP brought forward the start of production at its huge Jansen potash project in Canada to late 2026 from 2027.
It also said that it, along with joint venture partner Mitsubishi Development, had decided to put up for sale their Daunia and Blackwater coal mines, two of their seven metallurgical coal mines in Queensland’s Bowen Basin.
BHP has threatened not to invest in Queensland after the state hiked its coal royalties to the highest rate in the world. — Reuters
