BHP announces record cash return on surging coal prices

BHP said it would return a record amount of cash to investors as surging coal prices helped the world’s biggest miner deliver a 26 per cent increase in annual profits.

The Australian company declared a final dividend of $8.9bn, or $1.75 per share, taking total payments for the year to $16.5bn, the highest disbursement in its 137-year history.

BHP said shareholder returns were close to $36bn, including the shares in Woodside Petroleum given to its shareholders in exchange for the sale of the miner’s petroleum division.

The bumper payout concludes a transformational year for BHP in which the company spun out its oil and gas operations, unified its share structure in Australia and approved development of a huge potash project in Canada.

Chief executive Mike Henry is looking to increase BHP’s exposure to higher growth resources that will be in demand as the world seeks to decarbonise.

The company has seized on a sharp drop in commodity prices to launch a $5.8bn cash offer for Australian rival Oz Minerals. The bid was rejected by the Oz Minerals board last week and Henry refused to say whether he would increase the offer.

Oz Minerals would be “nice to have but not vital” for BHP, and the $140bn company would remain “disciplined” on price, Henry said.

“This is a very full and fair offer,” he added. “It’s really disappointing that the other side . . . has chosen not to engage on what we think is a pretty compelling offer for shareholders.”

Henry was speaking after BHP reported its highest profit since 2011, when it still owned an oil and gas business.

Underlying profit from continuing operations — a measure tracked by analysts — rose 26 per cent to $21.32bn on revenue up 14 per cent to $65bn in the year to June.

BHP’s Australia-listed shares rose almost 4 per cent on Tuesday morning following the announcement of the results.

The miner ended the year with net debt of just $333mn, significantly below its $5bn-$15bn target range.

The main driver of improved profits was BHP’s Australian coal business, which delivered underlying earnings before interest and tax of $8.7bn against a loss of $577mn a year as prices soared.

Earnings in BHP’s biggest business — iron ore — dipped to $19.5bn from $24.3bn a year ago. The company said it was studying plans to increase annual production of the steelmaking ingredient to 330mn tonnes, up from 283mn last year.

The world’s biggest miners have spent the past few weeks reporting lower profits and dividends as fears of a demand-sapping recession have hammered raw materials prices and clouded the outlook.

The exceptions have been companies with large coal businesses, which have benefited from a surge in prices as the war in Ukraine has crimped exports from Russia.

BHP is a leading supplier of coking coal, which is used to make steel, and owns a large thermal coal mine in New South Wales.

The company recently launched a review of its coking operations in Queensland following the introduction of a three-tier royalty rate in the state. The move angered the mining industry, which was not consulted over the decision to take advantage of high coal prices to boost public spending.

Henry said BHP was reassessing its future investment decisions and could not offer guidance on capital expenditure needed to hold production steady at about 60mn tonnes a year.

“This is a pretty significant shift in royalties,” he said. “So of course, that causes us to go back in and . . . review investments and how we run the business going forward.”

BHP also flagged the impact of inflation on its operations, saying unit costs in its iron ore division could hit $19 next year. The operation produced iron ore at a cost of $14.82 a tonne as recently as the 2021 fiscal year.