The world’s biggest mining company has forecast that “strengthening activity” in China will boost global commodity demand after rising inflation and weaker commodity prices took a toll on profits in the second half of last year.
BHP, the Australian miner, said revenue fell 16 per cent to $25.7bn and pre-tax profit fell 30 per cent to $10.2bn in the six months to December 31 compared with the same period a year earlier.
The company cut its dividend to 90c a share from a record $1.50 in the same period when commodity prices drove record profits. The $4.6bn payout is still the fifth-highest half-yearly dividend in its 138-year history. BHP shares fell 1 percent on Tuesday.
Inflation and higher labor costs have taken hold in the global mining industry, forcing companies to consider consolidation and shedding underperforming assets to increase returns.
“Commodity prices are down – this is a cyclical industry,” chief executive Mike Henry told the Financial Times. “But the underlying performance of the business is really strong,” he added, pointing to increased copper production as an example.
Demand from China and India boosted BHP’s confidence in its prospects. The company maintains financial forecasts for the full year.
Henry described the market as a “stable counterweight” to the slowdown in the US and Europe and said he was confident that commodity demand in China would improve. “This year will be another billion tons plus, for Chinese steel production, can increase in the last year,” he said.
Inflation has hit the mining sector, particularly in countries such as Australia where it has combined with labor shortages to drive up costs. BHP said inflation added about $1 billion to costs through factors such as higher diesel prices, which are up to 70 percent, according to the company, and other materials including explosives. The company says there are signs that the effect will diminish in 2023.
Prices for iron ore, which normally account for more than half of BHP’s earnings, were around 25 percent lower in the second half of 2022 compared with a year earlier, but have risen sharply since November as activity in China picked up after the Covid break. -19 Restrictions on the country.
Henry also welcomed the recent news that China has lifted an unofficial ban on Australian coal imports. “We are very encouraged by the improvement in trade relations,” he said, adding that BHP “is ready to engage with Chinese customers”.
Tyler Broda, an analyst at RBC Capital Markets, said in a note that the results were “surprisingly poor” as inflation and higher costs proved to be key factors for miners in the period.
BHP, Australia’s largest company, has responded to an increase in royalty rates in the state of Queensland, one of the world’s largest coal mining regions, by selling two of its mines, Blackwater and Daunia. About 2,000 people work at the mine, which is jointly owned by Japan’s Mitsubishi.
Henry said the move to increase royalties has triggered the decision to sell. “It’s super clear,” he said. “There are options to invest elsewhere.”
He warned the Australian government that heavy intervention and higher taxes could undermine the country’s ambitions to invest in critical minerals.
“The world is really at Australia’s feet,” he said, “but it needs the right policy settings.”