BHP Slides to Big Full-Year Loss -- WSJ
August 17 2016 - 03:03AM
Dow Jones News
Charges worsen hit from a steep slump in commodity prices; more
gloom in mining
By Rhiannon Hoyle
SYDNEY -- BHP Billiton Ltd., the world's No. 1 miner by market
value, recorded its worst-ever annual loss as US$7.7 billion in
charges exacerbated a deep slump in commodity prices.
Melbourne, Australia-based BHP reported a net loss of $6.39
billion for the 12 months through June, compared with a
year-earlier net profit of $1.91 billion. Underlying profit,
stripping out one-time charges, slumped 81% to $1.22 billion.
As recently as 2011, annual profits topped $20 billion.
The loss deepens the gloom in the global mining sector, which
has responded to global economic uncertainty and low prices for
commodities from copper to iron ore by closing mines, laying off
workers and slashing returns for investors.
BHP's earnings also took hits from problems not shared by many
of its mining peers: a deadly disaster at an iron-ore mine in
Brazil and weak oil and natural-gas markets. Those enormous charges
were largely against the Brazilian venture and U.S. onshore energy
assets -- $2.2 billion and $4.9 billion, respectively. BHP's
petroleum business, intended to help it through bad times in metals
markets, lost $7.72 billion after its write-downs.
BHP Billiton's annual loss was the first at group level since it
was formed in 2001 through a merger of Australia's BHP Ltd. and
U.K.-based Billiton PLC. Prior to that, BHP last posted a full-year
loss in 1999, also a time of weak prices.
"We are clearly very disappointed with this result. However the
underlying performance of our business... remains and is getting
stronger," Chief Executive Andrew Mackenzie said.
The company, which in February abandoned a policy of stable or
rising capital returns, cut its final dividend by 77%. Still, at 14
U.S. cents a share, it was higher than the 8-cent minimum required
under its policy, which BHP said reflected confidence in the health
of its balance sheet.
BHP didn't signal a recovery in commodity prices was imminent,
instead saying that abundant supplies of crude oil and metals such
as copper are likely to persist. Also, it sees the economy of China
-- top consumer of most of BHP's commodities, including iron ore --
as merely stabilizing rather than rebounding.
In response, BHP said it continues to seek $2.2 billion in
savings over the two years ending next June by making its
operations more productive, while cautiously advancing new projects
such as a U.S. Gulf of Mexico deep-water oil field that can boost
revenue.
"We are starting to open up at long last a decent margin and
therefore strong cash-generating capacity," Mr. Mackenzie said. The
company's London-listed shares rose 0.67% on Tuesday, helped by
forecasts that BHP could double free cash flow in the year ahead if
commodity prices remained stable.
Last year, BHP shifted assets in several niche commodities such
as manganese and alumina into a new company called South32 Ltd.
that was listed in Australia, London and South Africa. Mr.
Mackenzie has justified the overhaul -- one of the biggest
attempted by global miners in the current downturn -- as a way to
boost BHP's profits by focusing only on its biggest assets.
The strategy hasn't paid off yet: While South32 shares are up by
a quarter over the past year, BHP's are down 20%. Mr. Mackenzie
insists BHP would be worse off now if it hadn't restructured, and
calls the company's current portfolio "pretty close to what I would
say is ideal for BHP Billiton right now."
Credit Suisse said the 2016 financial year should be the low
point in the cycle for BHP's earnings, despite global uncertainty
that includes China's economic slowdown and the U.K.'s vote on June
23 to leave the European Union. Other analysts think BHP may also
need to set aside more money due to last year's deadly dam failure
at the Brazilian iron-ore mining operation it jointly owns with
Vale SA.
To be sure, BHP isn't alone in grappling with tough commodity
markets. In July, Anglo American PLC reported a first-half loss of
$813 million as it recorded a $1.2 billion impairment for some
Australian coal assets.
However, BHP's purchase of energy assets near the peak of oil
and gas prices have compounded its mining woes. The company plowed
about $20 billion into U.S.shale assets in 2011, becoming one of
the biggest petroleum producers outside of large integrated oil
companies such as Exxon Mobil Corp.
The oil-price slump has made that unit "a problem child," Credit
Suisse said in an Aug. 9 note.
Still, Mr. Mackenzie on Wednesday stood by the energy business
for what he called its damping effect on long-range volatility.
"Our petroleum business is a better business by being inside a
minerals business; our minerals business is a better business by
being alongside our petroleum business," he said.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
(END) Dow Jones Newswires
August 17, 2016 02:48 ET (06:48 GMT)
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