BHP to pay record dividend despite profit slide, FMG executives resign over cost blowout at mine

Here’s the best of what international corporate leaders have been discussing on earnings calls
February 17, 2021
BHP pays record interim dividend as it eyes robust commodity demand
February 17, 2021
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BHP to pay record dividend despite profit slide, FMG executives resign over cost blowout at mine

China’s strong demand for iron ore has helped BHP increase underlying net profit over the first half of the financial year, while global share markets rallied overnight on hopes that pending US coronavirus relief and the rollout of COVID-19 vaccines could stem the pandemic.

BHP’s net profit fell by one fifth from $US4.9 billion a year ago to nearly $US3.9 billion ($5.01 billion) for the six months to end of December after one-off write-downs of $US2.2 billion, mainly from its coal mines in New South Wales, its part-owned Cerrejon open cut coal mine in Columbia, and tax losses.

However, record production of iron ore in Western Australia and copper extraction from its Escondida mine in Chile, combined with higher prices for both commodities, saw net profit before write-downs rise 16 per cent to $US6.04 billion ($7.76 billion) for the six months to the end of December from $5.19 billion for the same time in 2019.

Although that was lower than the $US6.33 billion expected by analysts.

Investors will get a record interim dividend of $US1.01 a share, up from $US0.65 for the same period last year that saw BHP’s share price jump by 2.7 per cent to $47 a share.

China’s economy has bounced back from the shutdown caused by the coronavirus pandemic a year ago and the global mining giant said it expected strong demand from China to continue in 2021 along with a recovery in the rest of the world’s global crude steel production.

BHP boss upbeat about the future thanks to Covid-19 vaccines

BHP boss Mike Henry says he’s positive about 2021 despite some challenges ahead (Supplied)(Supplied: BHP)

BHP’s chief executive Mike Henry said the company had delivered a strong set of results for the first half of the 2021 financial year.

“Our continued delivery of reliable operational performance during the half supported record production at Western Australia Iron Ore and record concentrator throughput at Escondida,” he said.

He said while he was “fundamentally positive” about the outlook, he was worried about the impact of the trade tensions and COVID-19, but was hopeful about the vaccine rollout.

Mr Henry told journalists on a conference call that the diplomatic row between Australia and China affected earnings at its local coal mines.

The BHP boss said the miner’s business relationship with Chinese customers remained “very positive”, but the company assumed the ban on Australian coal imports at Chinese ports will continue for some time.

The big miner is trying to sell its coal mines in the New South Wales Hunter Valley and Queensland, and its stake in the Cerrejon mine, which has been beset by allegations of pollution and human rights abuses.

It estimates the sales process will take another 18 months.

UBS mining analysts said that, while BHP’s after-tax profit for the half year was less than expected, investors liked the record interim dividend.

FMG executives resign and chief executive forgoes bonus over mine cost blowout

Iron ore miner Fortescue Metals Group told the Australian Securities Exchange this afternoon that chief operating officer Greg Lilleyman had resigned with immediate effect over big cost blowouts at the iron ore miner’s $2.6 billion Iron Bridge project, which is a joint venture with Taiwan’s Formosa Steel and Chinese steelmaker, Baosteel.

The two top executives in charge of the project, Don Hyma and Manie McDonald, have also resigned.

The project in Western Australia’s Pilbara region is a magnetite iron ore mine, which is more expensive to produce than hematite iron ore, which can be dug up and directly exported without further production.

Chief executive Elizabeth Gaines and chief financial officer Ian Wells will forgo their bonuses for the financial year because of the blowouts, which were discovered during a review of the project.

“What we’ve learned through our review of the Iron Bridge project to date, is that we have lost sight of that critical focus,” Ms Gaines said in a statement.

Ms Gaines thanked Mr Lilleyman for his service.

“I would like to thank Greg Lilleyman for his enormous contribution since he joined Fortescue in January 2017,” she told the ASX.

“The success of our integrated marketing and operations strategy is a lasting legacy of Greg’s strategic focus and his commitment to our success over that period.”

Ms Gaines said the “detailed” review of Iron Bridge was underway and the market would be updated on Thursday when its half-year profit results were out.

FMG shares fell 3 per cent to $23.70 on the news.

NAB loan deferrals fall dramatically

The National Australia Bank said its earnings for the first quarter of the financial year were little changed.

Unaudited first quarter cash earnings came in at $1.65 billion, up 1 per cent from the same time a year ago.

Net profit for the quarter was $1.7 billion.

However, the profit margin between interest paid by the bank and the income from interest slipped over the quarter due to record low interest rates.

NAB said the bulk of customers who deferred their loans because of the coronavirus pandemic have resumed making repayments, with the value of deferred loans at $2 billion down from a peak of $38 billion.

The value of business loans being deferred fell from $19 to $1 billion.

The bank said that most customers exiting deferrals (around 90 per cent of the value of the loans) have resumed making repayments, “but a small cohort are requiring further assistance”.

NAB shares rose 1.1 per cent at $25.56. ANZ (+1pc) and Westpac (0.5pc) also rose, outperforming a declining CBA (-0.5pc).

Court rules CBA lied to business customers over $2.2 million interest bill

The Federal Court has ruled that the Commonwealth Bank mislead business customers more than 12,000 times about interest rates on business overdraft accounts in a case arising out of the banking royal commission.

The court found that the CBA charged an interest rate on business overdraft accounts substantially higher than what its customers were advised in a case brought by the corporate watchdog, the Australian Securities and Investments Commission.

The bank was found to have broken the ASIC Act on 12,119 occasions by engaging in misleading or deceptive conduct, which is a criminal offence.

The court also ruled that the CBA breached its general obligation as a financial service licensee to comply with financial services laws, in contravention of the Corporations Act.

The bank admitted it had told customers they would be charged an interest rate of 16 per cent on their overdraft, when in fact, some were charged 34 per cent, because of a systems error.

More than $2.2 million in interest was overcharged by the CBA.

ASIC Commissioner Sean Hughes said financial institutions needed to prioritise the upgrading of their information technology systems, “to ensure they deliver on promises made to their customers”.

The court will decide on criminal penalties in April.

PPE demand delivers profit bonanza for Ansell

Ansell shares jumped to the highest since November 2020 after half-year profit surged thanks to demand for personal protective equipment (PPE), such as rubber gloves, because of the coronavirus pandemic.

The company said sales for the last half of 2020 surged by nearly a quarter helped by the increased demand.

After-tax profit for the half rose by almost two-thirds to $106.5 million.

Ansell expects strong demand for PPE to continue for the next year and it also sees elevated demand for many other products as well.

Ansell shares climbed 1.8 per cent to $39.28 a share.

Higher metal prices sees recycler Sims surge

Shares in metal and electronics recycler Sims Metals Management jumped 7.4 per cent to $13.75 after half-year profit rose on higher prices and lower costs, which led to better profit margins, despite a fall in revenue.

It said net profit for the six months to the end of December swung to $53 million from a loss of $91 million for the same time a year ago.

Real estate sales firm Domain said half-year net profit was flat, rising just 1.2 per cent to nearly $20 million.

Half-year revenue fell 12 per cent to just over $138 million amid coronavirus shutdowns.

Domain shares lost 3 per cent to $5.13 a share.

Profits and commodity prices drive ASX to highest level in almost a year

Higher prices for iron ore, oil and copper, good profit results, and a record interim dividend for big miner BHP drove the market.

The ASX 200 index rose 0.7 per cent to 6,917, led by oil stocks and miners, while the broader All Ordinaries index rose 40 points to 7,189.

Buy now pay later firm, Zip, (+10pc) was the biggest gainer on the benchmark index.

Plumbing firm GWA Group (-8.1pc) led the losses on the benchmark index after reporting lower revenue for the half year.

After-tax profit dropped fell from $23.6 million to $18.5 million for the six months to the end of December.

RBA again promises ‘whatever it takes’

In the minutes from the RBA’s policy earlier this month, the board said that “very significant” monetary support was needed for some time and the official cash rate would be kept at a record low of 0.1 per cent for as long as necessary.

The central bank said its consultation with businesses suggested it would be some time before wage freezes ended in both the private and public sector.

It also reiterated that it believed there were few signs of “deterioration” in home lending standards amid booming home prices because of record low rates.

The Australian dollar rose by one quarter of a per cent to above 78 US cents.

By 4:50pm AEDT, it had slipped back to 77.85 US cents.

Oil surges on Middle East tensions and US cold snap

Oil joined equity markets in pushing higher, reaching its highest level since January 2020 on hopes US stimulus would boost the economy, and after a Saudi-led coalition fighting in Yemen said it intercepted an explosive-laden drone fired by the Iran-aligned Houthi rebels.

Crude oil futures rallied as the arctic blast across North America shut oil output.

West Texas crude oil broke above $US60 a barrel for the first time since the start of the year, as shale oil producers in Texas were forced to shut due to power outages.

Brent crude rose 1.3 per cent to $US63.25 a barrel overnight. At 16:50pm AEDT, it had increased slightly to $US63.44 a barrel.

With investors turning to riskier assets, safe haven gold fell overnight but has picked up today with the precious metal buying $US1,821.11 an ounce, up 0.1 per cent.

Iron ore prices rose 0.4 per cent to $US161.55.

Wall Street takes a break

Wall Street was closed overnight for the President’s Day holiday.

Millions of Americans travelled over the weekend despite warnings from health experts to avoid flights.

Figures from the Transportation Security Administration showed more than four million people passed through airport security checkpoints between Thursday and Sunday.

European shares jump on higher commodity prices

Global shares rose for the eleventh day in a row on optimism about the rollout of coronavirus vaccines and new US stimulus, while the tensions in the Middle East drove oil to a 13-month high.

European shares rallied overnight on higher oil and copper prices to the highest in nearly one year for the pan-European STOXX 600, which gained 1.3 per cent.

That is despite economists’ estimates that the European economy is in a double-dip recession.

Other data showed industrial production in the Eurozone contracted more than expected in December.

However, analysts from ING Bank said new orders for manufacturing continued to grow strongly.

In London, the FTSE 100 increased 2.5 per cent to 6,756 boosted by big miners like Rio Tinto (+4.2pc), BHP (+5.2pc), and Anglo American (+4.9pc) and oil giant BP, which jumped 6.5 per cent.

Pharmaceutical firm, AstraZeneca, whose Covid-19 vaccine is being rolled out globally, fell 0.7 per cent.

In Germany, the DAX was up 0.4 to 14,110 and the CA 40 in France rose 1.5 per cent to 5,786.

E-mini futures for the S&P 500 were also higher, up 0.5 per cent.

Later in the week, all eyes will be on the release of minutes from the US Federal Reserve’s January meeting — where policymakers decided to leave rates unchanged — for hints about the likely direction of monetary policy.

Investors are also focusing on next week’s profit results from hotels, cruise lines and other businesses that have been hard-hit by COVID-19 for indications about which companies could be the first to bounce back when the pandemic recedes.

Manufacturing data for this month will be released in the US and other major economies later this week.

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