BHP looks to raise earnings

BHP looks to raise earnings

BHP Billiton will set out plans to boost earnings growth this week to woo disgruntled investors and try to dispel the gloom that a fall in commodity prices has cast over the mining industry.

Putting forward a strategy to raise earnings at the world’s largest mining group by market capitalisation has become a priority for Andrew Mackenzie, chief executive, as he seeks to move BHP beyond last year’s defensive measures to withstand the commodities downturn.

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Investors dumped shares in miners last year as prices for many commodities fell to some of their lowest levels in a decade. BHP, a big oil and gas producer as well as a miner, was also under pressure as crude prices tumbled alongside iron ore and copper.

While the resources sector has partially rebounded this year, most in the sector expect continued volatility in prices and doubts have been expressed about a sustained recovery.

In a presentation to investors on Tuesday Mr Mackenzie is expected to say how BHP intends to increase profits in spite of the downturn.

“Bottom-line growth is the focus,” said a person familiar with the miner. “There is more that we can do than people appreciate to create value for the business.”

BHP’s market capitalisation is down to $70bn, less than one-third of its level at the peak of the commodities boom.

Mr Mackenzie, who took over as chief executive three years ago as commodity prices were starting to slide, has so far focused on a strategy of productivity gains through simplifying BHP’s business.

A centrepiece was the spin-off last year of a cluster of assets into a separate company, South32. BHP has also boosted productivity by squeezing more out of the mines and infrastructure on which it spent billions of dollars during the boom years, helping it to cut unit costs 40 per cent to levels last seen a decade ago.

However, miners including BHP disappointed shareholders last year by slashing or abandoning dividends as balance sheets came under strain from lower commodity prices, with a series of downgrades in the sector from credit rating agencies.

BHP, which for years sustained a policy of maintaining or increasing its payouts, cut its dividend 70 per cent at its interim results in February, with Mr Mackenzie saying that the sector had entered a “new era” when dividends had to be linked more clearly to underlying profits.

The Anglo-Australian group’s underlying profit fell 92 per cent in the first half of its financial year compared with the previous year. The group reported a $5.7bn interim net loss after $6.1bn of impairments to assets including its US oil business and Samarco, the Brazilian iron ore joint venture where production is paralysed after a dam failure killed 17 people.

BHP is expected to try to persuade investors that it is well protected from any renewed downturn.

Mr Mackenzie has already said the group’s period of investment in coal and iron ore is at an end and that any growth is likely to focus on copper or oil.

While the group has slashed capital spending, from $22bn in 2013 to an expected $5bn next year, Mr Mackenzie has said the group can “now deliver the same for less” and will start to have more choice of where to invest as it completes its largest projects.

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BHP looks to raise earnings
BDC October 2022 issue - 297

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