BHP BHP Group Limited

By Rhiannon Hoyle

Mining giant BHP said its annual profit fell by more than half compared with a year earlier, reflecting a pullback in commodity prices that has squeezed profits across the industry as China's economy stumbles and big markets like the U.S. grapple with sharply higher interest rates.

BHP, the world's biggest miner by market value, reported a net profit of $12.92 billion for the 12 months through June. That is down from a profit of $30.90 billion a year earlier when it had benefited from the sale of its oil-and-gas business and when commodity prices were at or near record highs. BHP said it also continued to grapple with cost inflation, especially in labor, diesel and electricity prices.

Analysts expected a profit of roughly $13.30 billion, according to a Visible Alpha consensus compiled from 15 forecasts.

The miner cut its final dividend to 80 U.S. cents a share, less than half the $1.75 paid a year ago. Shares in BHP were down by 1.5% around midday in Sydney.

BHP said its full-year cash payout of $1.70 a share is still its third-largest ordinary dividend on record. Analysts had forecast a total dividend around $1.72 a share, according to Visible Alpha.

"BHP's external operating environment in FY23 was volatile," BHP said. "Our key commodity prices were materially weaker leading to lower revenue generation, while we also managed significant cost inflation across the business."

BHP said its underlying profit, a closely watched measure that strips out some one-time items, totaled $13.42 billion, down from $23.82 billion in the previous fiscal year.

Commodity prices fell on concerns about economic growth in China, the largest buyer of many metals and minerals, and the outlook for developed economies after sharp increases in interest rates.

The miner was paid 12% less for its copper last fiscal year versus a year earlier and 18% less for iron ore, the key ingredient in steel.

The average price for its metallurgical coal, also used to make steel, was down by 22% after surging in 2022 in big part due to supply concerns when Russia's invasion of Ukraine disrupted trade flows.

Its own production was mostly higher. BHP produced more copper, iron ore, nickel and thermal coal than the year-earlier period. Its output of steelmaking coal was flat.

BHP's weaker profit mirrored results from rivals including Rio Tinto, Glencore and Anglo American. Rio Tinto, the world's second-biggest miner by market value, last month reported a 43% drop in first-half net profit and cut its own payout to shareholders due to weaker prices.

A drawn-out real estate crunch in China is especially worrying for miners, given the importance of the sector to the country's economy and metals demand.

"The main risk for BHP in the near term relates to the Chinese economy," Jefferies analysts said in a note. A continued downturn in the country's housing market could depress commodity demand and prices, the analysts said.

Another set of disappointing economic data for July along with a policy response that has so far underwhelmed have prompted a number of global investment banks to lower forecasts on China's full-year growth rate.

"The authorities have acknowledged that more policy support is needed to fully embed the recovery," BHP said. "For FY 2024, the key question is how effective this latest policy push will be."

Demand in China has, however, held up relatively well, the miner said, and it expects both China and India to be sources of stability for commodity demand in the near term.

By contrast, it took a more cautious tone on developed economies, where it said demand for commodities has slowed substantially in big part due to anti-inflation policies. "We anticipate that these competing forces may have a variable impact on commodity prices in the period" ahead, BHP said.

While rising expenses also eroded earnings last fiscal year, increased costs industrywide should help put a higher floor under world commodity prices, BHP said. "Overall, the cost of mining production is now estimated to be higher than it was prior to the pandemic."

BHP said it experienced an effective inflation rate of roughly 10% last fiscal year and projected further pressure in the year ahead, particularly in labor costs.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

(END) Dow Jones Newswires

August 21, 2023 22:36 ET (02:36 GMT)

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