BHP Billiton posts $5.67 billion net loss, ditches dividend policy
The hands of the commodity downturn appear firmly wrapped around BHP Billiton. The top global miner posted its half-year results on Tuesday, revealing a net loss of $5.67 billion after revenue fell 37 percent to $15.7 billion for the six months to Dec. 31.
In response to the monstrous loss--its first in more than 16 years, BHP abandoned its long-held policy of steady or higher payouts and slashed its interim dividend by 75 percent – from 62 cents to 16 cents. The dividend cut is the first since 1988.
"We need to recognize we are in a new era, a new world and we need a different dividend policy to handle that,” Chief Executive Andrew Mackenzie told Reuters, saying the company is committed to a minimum 50 percent payout of underlying profit going forward.
"The financial flexibility we will gain as a company from this move ... will allow us to invest counter cyclically,” said Mackenzie. "It will allow us to look at tier one assets in distress.”
Along with the global slowdown in China, BHP encountered an array of problems last year from the Minas Gerais disaster, which accounted for $1.2 billion, to the $US7.2 billion write-off of its onshore shale assets. The good news for BHP is that this is probably as bad as it gets.
"Slower growth in China and the disruption of OPEC have resulted in lower prices than expected," said Mackenzie. "However, our company remains resilient, with assets that generate free cash flow through the cycle and a strong balance sheet."
“Given months of anguish and market debate regarding the dividend, we expect that 16 cents while disappointing, is a cash flow positive and therefore will likely be absorbed by the market," said Shaw and Partners analyst Peter O'Connor.
According to Reuters, the Standard & Poor cut BHP's credit rating to 'A' from 'A+' this month and warned it might downgrade again if the company failed to take more steps to preserve cash and review its dividend policy.
"I can't see (the ratings agencies) downgrading. They probably would have if the commodity outlook was still poor, but I think the outlook is starting to turn in BHP's favor," said Fat Prophets mining analyst David Lennox.
BHP also announced changes to its corporate structure that will see its iron ore chief Jimmy Wilson and petroleum head Tim Cutt depart.
Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.