From Credit Susisse:
- The result was messy, but with NPAT of $11.8bn a miss at the bottom line vs. CS ($12.8bn) and consensus ($12.6bn). BHP noted that $700m of one off items were taken above the line and that the tax rate was unusually high at 38% on MRRT and FX movements (each pp. is ~$200m NPAT). Cost savings of $2.7bn failed to impress as it was driven by exploration/evaluation and normalisation of production at Escondida and Aus coal. The full year dividend of $1.16/sh (up 4%) and capex of $21.7bn were both in line.
- Production guidance: BHP is guiding to an 8% copper equivalent growth rate of over the next two years. This is down from the 10% BHP previously guided to and is primarily due to a lower petroleum production outlook (BP operated assets in the GoM). Specifically for FY14 (FY13): Petroleum at 250mboe (237mboe), WA iron ore at 207mt (187mt), copper at 1.2mt (1.2mt) and coal at 114mt (110mt). Capex guidance provided for FY14 at $16.2bn, low compared to earlier $18bn expectations.
- Jansen Potash gains another $2.6b to complete the shafts at an annual rate of $800m. This takes total potash spend to $3.75bn ex. acquisition ($4.8bn with). No total capex or time estimate to first production.
Also on various commodities:
- Iron ore- largest profit contributor facing limited growth: approaching maximum approved 220Mtpa capacity expansion by end CY2012 and further upside limited to 10% incremental improvement given current port situation (240Mtpa).
- Copper- best outlook but limited near term growth: Escondida production to be flat in FY14 increasing to 1.5Mt in FY15 all while spending $3.4bn on sustaining projects (desalination plant).
- Potash- capex but no revenue: while limited to 5% of total capex spend BHP will be spending another $3bn on this project that we are unlikely to see revenue before 2020.
- Coal- treadmill: high volumes but low prices mean cost curve is flattening in both energy and coking coal through BHP’s (and peer) efforts but EBITDA is minimal and likely to remain so on our conservative commodity price forecasts.
- Nickel, manganese and aluminium- any buyers? We view this as the “for sale” division. These businesses remain within the portfolio and will be run as efficiently as possible to keep head above water (or closed if not cash positive). BHP is likely to view any reasonable offers on Nickel West, the aluminium smelters or manganese business positively.
- Petroleum- declining volumes: previously powerhouse Gulf of Mexico position being hampered by general operating developments and JV partner issues.
- Shale: how much of the good acreage remains? With the high $8.5bn spend on the Eagle Ford and wider shale business over the past 2 years we think BHP may soon approach the limits of its high liquids acreage and little information has been provided on the prospects of the Permian.
- Dividends: we view the limited increase as the right move at this time given the breakeven FCF situation and higher debt. At 52% payout is at the higher end of where BHP would want it to be but reflects the depressed prices in many of the commodity portfolio.
- Debt and gearing: gearing now highest since FY05 and had BHP not sold Jimblebar debt would have been over $30bn and over 30% gearing. Although not near the maximum tolerance level (40%), it remains above comfort levels.
With the big capex downgrade despite a big renewed spend on Potash, BHP looks like it’s taking the end of the mining boom very seriously.
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