21st Feb 2023 05:02
(Alliance News) - BHP Group Ltd on Tuesday reported a sharp drop in interim profit, mostly due to falling prices for iron ore and copper, as it put two Queensland coal mines up for sale.
In its half year to December 31, the Australian mining company said revenue fell 16% to USD25.71 billion from USD30.53 billion a year before.
The decline was mostly the result of lower realised prices for iron ore and copper, BHP said.
The average price for a wet metric tonne of iron ore free on board dropped to USD85.46 during the period, down 25% from USD113.54 a year before.
The price for copper fell to USD3.49 per pound, a 19% drop from USD4.31.
"Significant wet weather in our coal assets impacted production and unit costs, as did challenges in securing sufficient labour. Inventory movements during the half contributed to costs, including the planned draw-down at Olympic Dam after inventory built up during the smelter refurbishment last year," said Chief Executive Officer Mike Henry.
Attributable profit dropped 32% to USD6.46 billion from USD9.44 billion, while basic earnings per share came in at 127.5 cents, down sharply from 186.6 cents.
Pretax profit fell 30% to USD10.18 billion from USD14.49 billion.
As well as the lower iron ore and copper prices, BHP said profit was also hit from the higher royalties due to increased Queensland government royalty rates.
"As a result of the Queensland government’s decision to raise coal royalties to the highest maximum rate in the world, the fiscal environment is no longer competitive or predictable and as such [BHP Mitsubishi Alliance] is not making significant new investments in Queensland," BHP explained.
BMA, which is BHP's joint venture with Mitsubishi Development Pty Ltd, has started to pursue the divestment of the Daunia and Blackwater mines in Queensland.
Inflation also held back the firm's interim performance, with an effective inflation rate of 12%. In particular, it pointed to rising prices for diesel, explosives and acid, which drove up costs.
Whilst inflation is easing across many categories, BHP warned the marginal cost of mining is likely to be "markedly higher" than in the pre-pandemic period.
On a more positive note, BHP noted record production at Western Australia Iron Ore, higher realised prices for thermal coal and nickel, as well as favourable exchange rate movements.
The firm proposed a dividend of 90 cents for the period, a 40% decrease from 150 cents a year before.
BHP said the "volatile" operating environment is likely to continue, and growth momentum would slow "substantially" in the developed world due to the anti-inflationary policies.
However, it forecast that recovering demand from China would serve as a "source of stability", after a "difficult time" in the first half of its financial year. BHP was also hopeful about the outlook for India.
CEO Henry commented: "We expect domestic demand in China and India to provide stabilising counterweights to the ongoing slowdown in global trade and in the economies of the US, Japan and Europe.
"The long-term outlook for our commodities remains strong given population growth, rising living standards and the metals intensity of the energy transition, including for steel making raw materials."
Shares in BHP were down 0.5% to AUD48.24 in Sydney on Tuesday.
By Elizabeth Winter, Alliance News senior markets reporter
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