At the time of writing, the mining giant’s shares are up 2.5% to $46.90.
How did BHP perform in the first half?
BHP had a very positive half thanks to a strong production performance and favourable commodity prices.
For the six months ended 31 December, the Big Australian reported a 15% increase in revenue to US$25.64 billion. And thanks to a 3-percentage point expansion in its operating margin to 59%, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 21% to US$14.7 billion.
Also growing strongly was the company’s free cash flow, which increased 39% over the prior corresponding period to US$5.2 billion.
This strong free cash flow generation allowed the BHP board to declare a fully franked interim dividend of US$1.01 per share (~A$1.30 per share). This is up 55% on the prior corresponding period and represents an 85% payout ratio.
What were the drivers of its growth?
The vast majority of BHP’s earnings were generated from its iron ore and copper assets.
The iron ore segment generated EBITDA of US$10.2 billion. Pleasingly, more of the same is expected in the second half, with management reaffirming its full year unit cost guidance.
The copper segment contributed US$3.7 billion in EBITDA. It is also on track to achieve its guidance for the full year.
Finally, the metallurgical coal and petroleum businesses contributed US$0.1 billion and US$0.8 billion of EBITDA, respectively, during the half. While the met coal segment fell short of guidance in the first half, it is still expected to achieve its full year guidance. The petroleum business is performing in line with expectation.
BHP’s Chief Executive Officer, Mike Henry, commented: “BHP has delivered a strong set of results for the first half of the 2021 financial year. Our continued delivery of reliable operational performance during the half supported record production at Western Australia Iron Ore and record concentrator throughput at Escondida. Our operations generated robust cash flows, return on capital employed increased to 24 per cent and our balance sheet remains strong with net debt at the bottom of our target range. The Board has announced a record half year dividend of US$1.01 per share, bringing BHP’s shareholder returns to more than US$30 billion over the past three years.”
The Chief Executive also commented on the sky high iron ore price, stating: “Our analysis indicates that before prices can correct meaningfully from their current high levels, one or both of the Chinese demand/Brazilian supply factors will need to change materially.”
The good news for shareholders and the BHP share price, is that the company is positive on the future.
It said: “We remain positive in our outlook for long-term global economic growth and commodity demand. The 2020s hold great promise in this regard, with policymakers in key economies (for example China, Japan and the US) signalling a durable commitment to pro-growth agendas alongside heightened ambitions to tackle climate change.”
“Population growth, the infrastructure of decarbonisation and rising living standards are expected to drive demand for energy, metals and fertilisers for decades to come,” it concluded.
Following today’s gain, the BHP share price is now up 22% over the last 12 months.