BHP Group Ltd announced record profits on Tuesday due to increases in the pricing of coal and other commodities, and did not rule out making a second $6 billion offer for OZ Minerals.
The shares of the world’s largest miner by market capitalization surged 5.5% after a higher-than-expected 26% increase in earnings to $21.3 billion for the year ended June 30 and the announcement of a record dividend.
BHP, flush with cash and more nimble after consolidating its London and Sydney public holdings, is once again on the hunt for acquisitions. On August 8, it made an offer to acquire copper and nickel miner OZ Minerals for A$8.34 billion ($5.8 billion) – its second takeover proposal in the past 12 months. The offer was turned down.
Mike Henry, chief executive officer of BHP, stated in an earnings briefing, “We have several levers for growth, and M&A is only one of them… we will remain cautious.”
Henry did not comment on whether BHP will make a new bid to OZ Minerals. At 02:30 GMT, OZ Minerals shares were up 1.2% while the Sydney benchmark was up 0.5%.
Henry remarked of OZ Minerals, “It’s a good to have but not a must-have.” “It’s quite regrettable that the board (of OZ Minerals) declined to participate.”
The increase in underlying profit from continuing operations exceeded the Vuma Financial consensus estimate of $20.89 billion.
Coal prices reached record highs during Russia’s invasion of Ukraine, which improved the company’s profits. BHP stated that the results reflected higher coal and copper prices, as well as strict cost management.
LOOKING TO EXPAND
Copper prices have declined by 25% after reaching an all-time high in March due to a slowdown in China’s economic growth and aggressive interest rate hikes that risk a worldwide recession.
According to Azeem Sheriff, a market analyst at CMC Markets, the bid for OZ Minerals and the June merger of BHP’s petroleum sector demonstrate that the company has excess cash flow and is seeking to expand.
Sheriff stated, “The copper and energy markets are quite favorable for the company, and this has been reflected in our forward guidance.”
In a note, RBC analysts stated, “BHP kept $4 billion in cash while concluding with $300 million in net debt, indicating that the balance sheet remains prepared for additional M&A.”
For the fiscal year that concluded on June 30, shareholders will receive a final dividend of $1.75 per share, resulting in a high annual distribution of $3.25 per share, at a time when other miners have reduced investor returns in response to falling profits.
The miner stated that it will evaluate alternatives for increasing production at its top iron ore producing plant to 330 million tonnes per year, and will also continue to investigate development opportunities in “future-facing” commodities such as copper and nickel.
As monetary policy tightens, BHP anticipates a downturn in advanced economies, and manpower shortages will continue to exert pressure on global and local supply chains.
Henry, on the other hand, was positive about China, and its return from COVID-19 lockdowns ought to increase resource demand. “We anticipate that China will emerge as a source of stability for commodities demand in the coming year as policy support gains traction,” he said.
Rival miner Rio Tinto (NYSE:RIO) reported a 29% decline in first-half profit and slashed its dividend by more than half in July, citing weaker demand from China and supply-chain issues.