BHP Billiton bucks the trend

[miningmx.com] – It was a case of “Armageddon postponed’ following publication of BHP Billiton’s results today as the share price rose 5% on the London Stock Exchange despite some dire analyst predictions that the group might cut its dividend.

Instead, BHP Billiton maintained its final dividend at US$0.62 which meant the total dividend for the year to end-June was 2% up at $1.24/share.

In his results presentation CEO Andrew MacKenzie “rubbed it in’ pointing out that BHP Billiton’s progressive dividend policy had withstood previous cycles and the group was the only major resource group not to cut its dividend during the global financial crisis.

He added BHP Billiton’s dividend policy was not rebased following the demerger earlier this year of South 32 which now owns various coal, base metal and aluminium operations which were deemed “non core’ by BHP Billiton and spun out to its shareholders.

Asked by an analyst after his presentation whether it was a case of the dividend would be cut “over my dead body’ Mackenzie replied, “over my dead body is a bit strong but it’s probably right. Our dividend policy is part of the compact we have with many of our shareholders.’

While BHP Billiton’s earnings were sharply down the group maintained profit margins through aggressive cost cutting measures and increases in productivity and Mackenzie stressed that cyclical volatility was a normal part of the commodity business.

He commented, “in the short to medium term we expect moderate growth of the global economy. In the longer-term, urbanisation and industrialisation will remain the primary drivers of commodity demand.’

Mackenzie added, “ongoing economic reforms in China will contribute to periods of market volatility but the longer-term outlook is that China will continue to rebalance to a more sustainable development pattern.’

BHP Billiton’s results were viewed by some analysts as being particularly at risk given the steep drop in the iron ore price because of the importance of its iron ore exports from Western Australia to China.

Iron ore revenues fell to $14.6bn (2014 – $21.4bn) and underlying EBIT (earnings before interest and tax) dropped to $6.9bn ($12.1bn) but the profit margin remained at an “exceptional’ 59% as the group drove unit cash costs on its Western Australian mines down 31% to below $19/t for the full year and to $17/t in the second half.

Mackenzie commented that “margins for low cost iron ore supply will remain strong despite the subdued price environment’

He added, “We do not require the same level of investment to grow as in the past. Improved productivity can further stretch the capacity of our existing operations at very low cost.

“In Western Australia Iron Ore we can increase the capacity of our system from 254mt today to 290mt over time with minimal investment while making more than $20/t margin at today’s prices.’