BHP Billiton’s shareholders could be in for a cash bonanza after it posted record production in a year in which it slashed billions of dollars in spending.
Commodity prices have fallen but are still historically high, meaning BHP should be generating plenty of cash out of its biggest earner iron ore, currently at a strong $US129 ($A140.37) a tonne.
After beating expectations and lifting iron ore output by seven per cent to a record 187 million tonnes in the year to June 30, the view was that the extra volumes were offsetting the price falls.
BHP, the world’s largest diversified resources group, says it will push on with its iron ore expansion, forecasting production of 207 million tonnes this year.
There was a $340 million blowout in expansion costs during the year.
Analysts are forecasting weaker full year net profit of $US12 billion to $US13 billion from $US15.4 billion a year ago.
However on top of that, the company’s recently appointed boss Andrew MacKenzie flagged slashing capital and exploration expenditure by as much as $US7 billion a year from its current $US22 billion in two to three years.
BHP’s share price had shot up 75 cents, or 2.2 per cent, to $34.18 at 1400 AEST, but is down 12 per cent from its year-high $39 in February.
CMC Markets chief market strategist Michael McCarthy said the share price highlighted to him how wrong investors had been in not allowing for a boom in mining volumes to offset pricing.
“We’ve all gone doom and gloom on mining, but China has not slowed – it is continuing to grow,” he told AAP.
BHP shipped more iron ore than it produced – 217 million tonnes – for the year, showing Chinese demand was strong, with Rio Tinto also posting strong half year shipments this week.
“With the pull-back in investment, the big problem for BHP and Rio, judging from this quarterly production, is what to do with all the money,” Mr McCarthy said.
“They don’t want to invest in their own projects, so there are capital initiatives coming in this space if this dynamic continues.”
BHP tends to stick to a policy of progressive, gradually-increasing dividends so share buybacks might occur.
The production report was generally well received, with Goldman Sachs’ Craig Sainsbury saying BHP appeared to be “sweating its assets hard” to maximise production at a time of cutting costs instead of growth.
“It will be interesting to see what it means in terms of tangible cost savings when it comes to their half and full year (financial) results,” he told AAP.
The major negative was petroleum production, which produced 235.8 million barrels of oil equivalent (mboe), missing its target of 240 million barrels.
It blamed energy giant BP without naming it, saying said the target was missed because of maintenance and drilling delays at its offshore Gulf of Mexico assets that the British company and not BHP operates.
Petroleum is a high priority as the company’s second highest earner with a large chunk of its capex – $US4.8 billion – spent on its onshore US shale assets during the year.
