Market and product

Robust iron ore prices drove BHP Group to its best result in five years, still slightly off estimates, with the miner saying containment this quarter of a coronavirus that is spreading around the globe should limit any economic impact.

BHP’s underlying profit from continuing operations rose to $5.19 billion for the six months ended Dec. 31 from $4.03 billion a year earlier, the strongest result since the same period of 2015, lifted by lofty iron ore prices after last year’s supply disruption out of Brazil and solid Chinese demand.

The results were below estimates of a profit of $5.28 billion, according to analysts polled by research firm Vuma Financial. An interim dividend of 65 cents, 10 cents higher than last year, undershot forecasts for a dividend of 71 cents.

The dividend came in “below market as board takes conservative approach given coronavirus (63% pay-out vs 70% 3-yr average),” UBS said in a note.

BHP has not yet seen a major impact on its business from the coronavirus that was discovered in China at the end of last year, and customers have kept paying for their orders, the miner’s new chief executive, Mike Henry, said on Tuesday.

He added, though, that other supply disruptions have lent support to iron ore.

“We are moving all of our product. Demand remains pretty resilient. Prices have held up in part because of some other supply side disruptions,” Henry said.

Rio Tinto downgraded its forecast for iron ore shipments for the year on Monday after a cyclone off the coast of Western Australia earlier this month.

BHP is the first among its peers to report its earnings. Global miners are all expected to have cashed in on last year’s higher iron ore prices, with a further boost coming as China pumped more money into its economy to alleviate an economic slowdown. China’s iron ore imports were at their second-highest level ever in 2019, further boosting profits.

The world’s biggest miner is positioning itself well in a world that is decarbonising, Henry also said.

BHP is seeking to raise its exposure to “future facing” commodities copper and nickel, through exploration and early stage acquisition, he said, adding that it would be open to selling its thermal coal assets if it can find a buyer at the right price given the deteriorating prospects for the market.

“We need more copper and we need more nickel,” Henry told reporters as he pledged to meet “social value” commitments.

BHP has also been using more renewable power, is assembling targets to scale back so-called “scope three” emissions - or the emissions of its customers - and is completing a review into industry associations that it funds to ensure they comply with its climate change goals.

As it seeks to improve efficiencies within the company, BHP will also look at restructuring its technological operations and making more staff permanent, Henry said.

Shares rose 0.9 percent on Tuesday to $A38.83 amid an uplift in the mining sector after Beijing stepped up stimulus to cushion the impact of the corona virus outbreak.

Free cash flow for the miner came in at $3.7 billion, compared with $3.6 billion a year earlier. - Reuters-