Soaring commodity prices allow BHP to hit its best profit in 11 years, increasing the arsenal for mergers and acquisitions

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A small toy figurine and a mineral imitation are seen in front of the BHP logo in this illustration taken November 19, 2021. REUTERS/Dado Ruvic/Illustration

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  • Annual profit jumps 26%, shares climb 5.5%; record dividend
  • Fails to rule out new bid for OZ Minerals, first bid rejected
  • OZ Minerals “nice to have, but not essential” – BHP CEO

Aug 16 (Reuters) – BHP Group Ltd (BHP.AX) reported windfall profits on Tuesday on soaring commodity prices, sending shares soaring higher as the global miner did not rule out a second approach in its rejected $6 billion bid for OZ Minerals (OZL.AX).

Shares of the world’s biggest miner by market value rose 5.5% as investors cheered a better-than-expected 26% jump in annual profits to $21.3 billion – its highest since 2011 – and the announcement of a record dividend.

Fund-rich and more nimble after unifying its public holdings in London and Sydney, BHP is back on the hunt for acquisitions and on August 8 offered to buy copper and nickel miner OZ Minerals as part of a A$8.34 billion ($5.8 billion) deal – its second takeover bid in a year. The offer was declined. Read more

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“We have many levers for growth and mergers and acquisitions is just one of those levers…we will remain disciplined,” BHP chief executive Mike Henry said during an earnings briefing.

Henry did not say whether BHP would return to OZ Minerals with a revised offer. Shares of OZ Minerals rose 1.2% at 02:30 GMT while Sydney’s benchmark rose 0.5%.

“Nice to have but not essential,” Henry said, referring to OZ Minerals. “It’s quite disappointing that the board of directors (of OZ Minerals) chose not to engage,” Henry told reporters at a news conference after announcing his company’s annual results.

The jump in underlying profit from continuing operations exceeded a consensus estimate of $20.89 billion compiled by Vuma Financial.

The bid on OZ Minerals, along with the merger of its oil business in June, shows BHP has plenty of excess cash flow and is looking to expand, said Azeem Sheriff, market analyst at CMC Markets.

“The copper and energy space is really positive for the business and that translates to progressive directions as well,” Sheriff said.

“BHP retained $4 billion in cash despite ending with net debt of $300 million, which tells us the balance sheet remains primed for further mergers and acquisitions,” RBC analysts said in a note.

“FUTURE-ORIENTED” GROWTH

For the year ended June 30, shareholders will receive a final dividend of $1.75 per share, marking a maximum annual distribution of $3.25 per share, at a time when other miners have reduced returns for investors. to cope with declining profits.

The miner said it would assess options to increase production at its main iron ore production unit to 330 million tonnes per year, and continue to explore options for growth in “forward-looking” commodities. future” such as copper and nickel.

The miner’s performance at its iron ore operations in Western Australia also helped offset a drop in steel feedstock prices from record highs last year, as China’s efforts to cut Emissions and easing construction activity in the country’s indebted real estate sector reduced demand.

“We expect China to become a source of stability for commodity demand over the coming year, with political support gradually taking hold,” Henry said.

BHP also warned of a slowdown in advanced economies as monetary policy tightens, and said it expects labor constraints to continue to put pressure on chains. global and local sourcing.

Rival miner Rio Tinto (RIO.AX), (RIO.L) reported a 29% drop in first-half profits and cut its dividend by more than half in July, citing slowing demand from China and supply chain issues. Read more

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Reporting by Savyata Mishra in Bengaluru and Praveen Menon in Sydney; Editing by Arun Koyyur and Kenneth Maxwell

Our standards: The Thomson Reuters Trust Principles.

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