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BHP Billiton profits hit by plunging commodities prices Mining stocks drive FTSE 100 rebound
(about 2 hours later)
BHP Billiton has reported its worst underlying profit in a decade, gutted by plunging iron ore, copper, coal and oil prices, and said it would cut spending more deeply to shore up dividends. Mining stocks hammered on Black Monday have clawed back some ground, after major companies announced cost savings that are likely to preserve expected dividend payouts.
BHP and its peers have been hit after hiking output of iron ore, copper and coal just as demand growth slowed in China, the top global metals consumer. The company has been slashing costs over the past three years to cope. Shares in BHP Billiton jumped by 8.5% to £10.49, despite reporting a 52% slump in annual profit to a decade low, after the group said it would slash spending to shore up dividends.
The world’s biggest miner reiterated its pledge never to cut its dividend, and lowered its target for capital spending for the year to June 2016 to $8.5bn (£5.38bn) from $9bn to help meet the promise.The world’s biggest miner reiterated its pledge never to cut its dividend, and lowered its target for capital spending for the year to June 2016 to $8.5bn (£5.38bn) from $9bn to help meet the promise.
“Our commitment to our progressive dividend is resolute,” BHP’s chief executive, Andrew Mackenzie, said on Tuesday. “It has withstood many previous cycles and is a key differentiator relative to our peers.”“Our commitment to our progressive dividend is resolute,” BHP’s chief executive, Andrew Mackenzie, said on Tuesday. “It has withstood many previous cycles and is a key differentiator relative to our peers.”
BHP shares jumped 6% in early London trading, partly reversing a 9% fall in the previous session when commodity stocks globally fell over fears of a hard landing for the Chinese economy. Copper miner Antofagasta added 3.7% after saying it was targeting savings of about $160m this year. Peers Anglo American and Rio Tinto climbed nearly 3% as base metals staged a modest rebound.
BHP, the last of the big five global miners to report results, said its underlying attributable profit fell to $6.42bn for the year to June from $13.26bn a year earlier. The result was below analysts’ forecasts of about $7.73bn. The mining sector as a whole recovered 3.7% after dropping 9% to its lowest level since 2009 on Monday.
Net profits dropped 86% as BHP took $2.9bn in post-tax charges that it flagged previously, mainly on its US shale and Nickel West businesses. Meanwhile, shares in BG, which is the subject of a £13.50 a share takeover offer from Shell, moved up from £9.31 to £9.60. BG’s share price is still far short of Shell’s offer price, leaving some to speculate that the deal, which values BG at £47bn, could be in trouble.
BHP said it had achieved $4.1bn in cost cuts two years ahead of schedule as it looked to protect its investment grade rating, and said it would generate further savings in the year ahead by working its operations even harder. Sources said the deal, which does not complete until early next year owing to regulatory issues, was progressing as planned. However, others warned that if oil prices and stock prices continued to tumble, Shell might try to renegotiate the agreement terms.
The miner spun off the base metal and coal mining company South32 to shareholders in May with a string of unloved assets as it sought to simplify to four main commodities – iron ore, copper, coal and petroleum – but has been hit by sliding prices for all four due to slowing growth in China. Some bankers fear recent stock market volatility and share price falls could derail several merger deals, just when the global market looked set to beat levels last seen before the financial crash.
However, two takeover deals seemed to be proceeding with hitch, with Zurich tabling a £5.6bn bid for insurer RSA and Monsanto sweetening its takeover bid for the Swiss agribusiness group Syngenta.
Oil bounced back from heavy losses – but global oversupply and worries over the severity of the economic slowdown in China, the world’s biggest commodity consumer, kept prices near 6 and a half-year lows, with Brent trading at less than $44 a barrel.