August 20, 2019 / 3:27 AM / a month ago

Mining giant BHP pays record dividend, but flags risks to global growth

MELBOURNE (Reuters) - BHP Group, the world’s biggest miner, on Tuesday reported its largest annual profit in five years and posted record full-year dividends, boosted by a dramatic rally in prices for steelmaking ingredient iron ore.

FILE PHOTO: Visitors to the BHP (formerly BHP Billiton) booth speak with representatives during the Prospectors and Developers Association of Canada (PDAC) annual convention in Toronto, Ontario, Canada. March 4, 2019. REUTERS/Chris Helgren/Files

However, the dividend slightly undershot some expectations as BHP kept cash in its coffers in the face of risks to global economic growth such as the Sino-U.S. trade war.

BHP has handed back some $20.9 billion to investors for the financial year that ended in June including a 78 cent dividend announced on Tuesday. That stemmed from the sale of its shale gas business and was helped by surging iron ore prices following supply outages in Brazil and Australia.

“Most people were thinking around this level on dividends, but a lack of any additional returns may disappoint some,” said analyst Glyn Lawcock at UBS in Sydney.

BHP shares edged down 0.8 cents to A$35.96 ($24.30) on Tuesday, while the broader Australian market was up slightly.

While the trade dispute between Washington and Beijing has dampened global economic growth, it has not yet affected Chinese demand for BHP’s commodities such as iron ore, copper and coal in China, said Chief Executive Andrew Mackenzie.

“There’s obviously been a slight cooling in appetite based on some of the concerns we have seen in the short-term for the global economy. We are not without some consideration as to what might be around the corner,” he said, in reference to BHP’s lack of special dividend.

Reports of stimulus efforts in China and Germany calmed fears of a severe downturn in the global economy on Tuesday that were stoked last week as bond yields fell.

WHITTLING COSTS

Mackenzie also noted that BHP has become the world’s lowest cost iron ore producer, whittling costs down to $12.86 per tonne with scope to trim them still further, as it reaped a 40 percent jump in realised prices to $77.74 from $55.62 in the first-half of the 2019 calendar year.

Iron ore prices staged a dramatic rally in the first-half with the Dalian iron benchmark more than doubling, amid the supply shortfall and more Chinese appetite for the steelmaking raw material as it ramped up infrastructure spending to support its economy.

China’s iron ore imports surged 21% in July from the month before to their highest level since January, as supply recovered from miners in Australia and Brazil.

Mackenzie also said that BHP had its thermal coal operations under review. There has been some speculation in markets that the company could look to sell these operations.

Underlying profit for the 12 months ended June 30 rose to $9.12 billion from $8.93 billion a year earlier, but still undershot expectations of $9.4 billion from a Vuma consensus of 18 analysts.

Underlying profit is a measure of the company’s core performance excluding one-time gains and losses.

But the company recorded $1 billion in productivity losses for fiscal 2019 on disruptions to production at its copper and iron ore operations.

BHP declared a final dividend of 78 cents per share, up from 63 cents last year.

($1 = 1.4797 Australian dollars)

Reporting By Rushil Dutta in Bengaluru; Editing by Shounak Dasgupta, Bernard Orr and Joseph Radford

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