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BHP Billiton unveils $2bn return
David McKay
Posted: Wed, 15 Feb 2006
[miningmx.com] -- BHP Billiton is to return $2bn to shareholders, its second consecutive such return, in a development viewed as a resounding vote for the continued strength of the commodities market.
Rising costs, while a challenge for mining firms, would also constrain new entrants into the mining business and restrict new project announcements, said CEO Chip Goodyear.
The company also raised the prospect of further capital returns to shareholders as the commodity market was expected to remain buoyant for the next 18 to 24 months, it said.
BHP Billiton announced a 48% improvement in net profit to $4.4bn in the six months ended December. Sales grew 19.5% to $18.2bn. Of total revenue, about 16% was from sales to China.
The capital return will begin with a $1.1bn share off-market buyback. The balance of the $2bn will be completed with on-market share purchases. In
addition, the company announced a 17.5c/share interim dividend, a 30% year-on-year increase.
The capital return was notwithstanding a $14.4bn capital projects programme which included 18 projects currently underway at a cost of $8.9bn, the company said. In total, BHP Billiton had returned $11.4bn to shareholders since 2001.
"The Board of BHP Billiton has an absolute commitment to capital discipline, and our confidence in the Company’s outlook and strong cash generative capability has underpinned our decision to make this sizable return," said Don Argus, BHP Billiton's chairman.
However, analysts said the capital return was on the low-end of expectations. "The facts are that the capital management programme is at the low end of expectations, costs did rise more rapidly than those of Rio and the petroleum division is facing further delays," said John Clemmow, an analyst for Investec Securities.
"Management have announced a $1bn off-market share buyback,
in line with expectations but not as positive as an on-market buyback as not all investors might see this offer price," said John Meyer, an analyst at Numis Securities.
Growth in the Chinese market, estimated at 10% over the last three years by the company, was expected to slow in 2006. But it would remain at a relatively high level, the company said in its results commentary.
"Our confidence in the demand outlook for the next 18 to 24 months (in the absence of unforseen circumstances) and higher than expected prices means we are able to continue to return surplus capital to shareholders while meeting our needs to continue to expand our productive capacity," the company said.
Sales, however, were not uniformly strong for the group. While base metals and carbon steel products registered healthy increases year-on-year, there was a 40% decline in sales for diamonds and speciality products, and a 7% decline in sales for petroleum.
Earnings before tax and
interest showed an additional year-on-year decline for aluminium (-10%), and 35.7% and 30.7% declines for diamonds and coal divisions respectively.
Speaking to Dow Jones newswires, UBS analyst Glyn Lawcock said the dividend and capital payment was "... a signal of BHP's confidence in the demand outlook for the next 18-24 months".
Rising costs of new mining developments and expansions are likely to keep commodities scarce in coming years, helping prices, Goodyear told Dow Jones.
Goodyear said: "The bad news is costs are rising, but the good news is prices are rising. As costs go up the entry price of getting into this business is also rising."
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