BHP sticks to the long term

Rather than appease short term yield hunters, BHP has delivered just a modest lift in dividend and kept its cash for the long term.

Andrew MacKenzie has refused to succumb to the short-term pressures of stock traders.

Where rival resource houses Woodside (WPL) and Rio Tinto (RIO) have jumped into the yield game, the newly installed BHP chief has kept the payout of the world’s biggest mining house in check, delivering a final dividend of just 59c.

Instead, he has committed $US2.6 billion to develop the Jansen potash operation in Canada despite the recent implosion of a European potash cartel that has caused the end product’s price to slump.

The world’s biggest miner hasn’t lost sight of the fact it needs reserves if it is to maintain its position as a developer of long-term tier one resources.

The result generally has been hailed as a disappointment.  Analysts had pencilled in $US12.6 billion when the company earned just $US11.8 billion, a 31.3% fall.

But there was a huge range in analyst forecasts. The bottom end had earnings at just $US10.9 billion while at the top expectations of $13.2 billion were bandied about.

Given the sharp falls in resource prices during the year – copper was down 6%, iron ore down 21% and coal off 30% – the business and the earnings were always going to be under pressure.

BHP is a multi-headed hydra of a company with massive investment in huge range of commodities and over vast array of geographies. Trying to pull it all together is a difficult task, but the headline numbers indicate the stock will come under pressure in the next few weeks.

BHP has been driven higher in recent weeks by the sudden surge in iron ore prices, which in Australian dollar terms now are at close to record levels (see Adam Carr's The fine line in iron's decline). This result is likely to inject some sanity back into proceedings.

On a divisional basis, petroleum didn’t perform as well as expected, iron or was largely in line while aluminium, magnesium and nickel came in better than expected.

Interestingly, the company took a $US922 million hit on hedging costs of a recent bond issue where it apparently hedged against a fall in interest rates, which instead rose.

Given the company eschews hedging in commodities, the loss no doubt will disappoint investors who believed they would not witness the kind of trading that has wounded many a resources company.

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