BHP Billiton swings back into the black at interim results

BHP Billiton on Tuesday reported that it swung back to profit in the first half of its current financial year, and rewarded investors by announcing a higher-than-expected interim dividend.

Net profit at the world’s largest mining company by market capitalisation came to $3.2bn in the six months to December 31, compared to a loss of $5.7bn in the same period one year earlier.

Andrew Mackenzie, BHP chief executive, said the “strong result” reflected several years of productivity improvements and a redesign of the company’s operating model.

“Our steadfast commitment to this plan has positioned us to take full advantage in a period of higher prices,” he added.

BHP’s interim results for its 2016-17 financial year were buoyed by an unexpected resurgence in commodity prices and the company’s recovery following write-offs linked to its expansion into shale oil and gas, and a fatal accident at an iron ore joint venture in Brazil.

BHP proposed an interim dividend of $0.40, up from 16 cents one year ago, and above analysts’ expectations of $0.30. The payout echoes Rio Tinto’s move this month to increase its dividend.

Last year, following a plunge in commodity prices, BHP scrapped its policy of maintaining or increasing its dividend, and replaced it with a commitment to pay shareholders at least 50 per cent of underlying profit every six months.

Mr Mackenzie said the interim dividend was $0.10 above the amount required under its new policy. “It is a strong signal of our enduring commitment to provide strong cash returns to our shareholders,” he added.

But BHP said the iron ore market — the company’s single biggest source of revenue — was likely to come under pressure in the short term from “moderating Chinese steel demand growth, high port inventories and incremental low cost supply”.

BHP also warned about a marked rise in geopolitical uncertainty and protectionism.

“The outlook for the US economy is uncertain,” said the company. “The policy of the new [Trump] administration points to a higher inflation environment than previously envisaged.”

Mr Mackenzie told reporters he had a meeting with Donald Trump shortly before his inauguration as US president, where he discussed BHP’s views on trade, the future of coal and climate change.

If Mr Trump can unlock financing for new infrastructure in the US “that would be good news for the resources industry”, said the BHP chief executive, who cautioned that “trade wars won’t help anybody”.

Mr Trump could also foster a more “balanced” debate about coal, added Mr Mackenzie. “People have been probably too quick to condemn coal.”

BHP’s underlying earnings before interest, tax, depreciation and amortisation came to $9.9bn in the six months to December 31, up 65 per cent compared with the same period one year earlier.

The company’s net debt fell 23 per cent to $20.1bn at the end of last year.

Clarke Wilkins, analyst at Citigroup, said BHP had issued a pretty good set of results, noting that investors would welcome the dividend.

However, BHP said its guidance for copper production during 2017 was under review because of a strike at its Escondida facility in Chile, which ranks as the world’s largest red metal mine.

BHP has experienced a difficult 18 months following a disaster in 2015 at its Samarco iron ore joint venture with Vale in Brazil, which killed 19 people.

“Providing our support for the long-term recovery of the communities and environment affected by the Samarco tragedy . . . remains a priority for BHP Billiton,” said the company.

BHP’s shares closed up 0.4 per cent at £14.06 on Tuesday in London.