Changes are afoot within the world’s largest mining company. Until recently, the world’s largest mining company’s results were driven by the world’s most abundant mineral, iron ore. When it came to earnings this year, it was copper that was kingand remained so. Tuesday, the Australian giant announced full-year results which revealed the extent of the red metal’s strength. Net profit increased 9% to 9.83 billion dollars. Underlying profit increased more strongly by 30% to 13.2 billion dollars, exceeding the consensus forecast of most analysts. Turnover has increased by 15% to 58.8 billion dollars.
In behind those figures there is a simple truth; copper prices reached new highs, BHP sold its metal at prices 35% higher than 2004 and just its copper division has produced over 50% of the company’s (BHP) profit for the first time ever. Three weeks in as chief executive, Brandon Craig made it clear. Copper is the source of all BHP’s good news. Its growth was still clear though the division managing a record 18.2 billion dollars of underlying earnings before interest tax depreciation and amortisation; margins risen to 70 percent.
Production and exports reached new heights for its Western Australian operations, iron ore remained a buoyant story, but copper now dominates. Everything could not be better timed. World demand for copper remains buoyant as the world’s more data centres are built for artificial intelligence and electricity grids are extended and electrification intensifies. Meanwhile supplies have been uneven with stocks confined, Chinese smelters constrained by feedstock issues and prices above dollars 14,000 a tonne.
BHP has enjoyed the tail winds and maintained its cost base, producing nearly two million tonnes of copper again. Shareholders are feeling the love. The board announced a final of 99 cents per share, increasing the full year dividend to 1.72 a share, which is the highest in four years and equates to the least 8.7 billion dollars handed back in four years.
Net debt has dropped below nine billion dollars, providing a greater scope for the balance sheet. Craig was unambiguous that the company plans to carry on capitalizing on this success. BHP has numerous project prefeasibility studies in progress in Chile, Australia and Argentina which could add about 40% to copper production by the mid-2010s. Really, management sees the rise being largely self-funded from the cash flow the copper business is generating today.
At Escondida the company has sanctioned USD0.5 billion of up-front investment for a new concentrator with a final investment decision within a few years. In South Australia the copper business is again producing satisfactory metrics. None of meaning iron ore has become any less crucial. China’s steel appetite has proved more resilient than most people expected and BHP’s Pilbara holdings are still in the premier league.
Steelmaking coal also played its part. Still, within the organisation the scales have definitely shifted. Copper is no longer down in the smelteries as one commodity among many. It is now the growth driver, cash cow and strategic focus.
