It’s always the same. Every cycle, we see boom prices for commodities extrapolated outwards forever. As prices peak, vested interests pile in to declare this time if different and profits will be stronger for longer, and dividends persist.
Err, no:
BHP says iron ore prices are unlikely to fall below $US80 ($125) a tonne in an environment of softening Chinese demand, as it reported a 37 per cent slump in underlying profit to $US13.4 billion.
BHP shareholders will receive a US80¢ final dividend, taking the full-year total to $US1.70 a share. Both the profit and dividend result were weaker than analysts had expected. Consensus measured by Visible Alpha was $US13.76 billion for underlying earnings for the year to June 30. Analysts had expected total dividends of $US1.72 a share.
Of course, iron ore will fall below $80. Far, far below it.
Coking coal will fall much further, too.
Sadly for BHP, these two comprise nearly three-quarters of underlying EDITDA:
And as the steel inputs fall, the impact on earnings is huge:
I expect iron ore to average about $80 over the next year and coking coal about $200. That would hit BHP EBITDA by $5-6bn.
The bigger problem is that both steel inputs will keep falling for the next decade, during which BHP will have long periods earning half and less of its current profits. There will be no dividend soon enough.
BHP should never have exited oil. Now it is just a fatter FMG.
Finally, QLD knows how to treat an arrogant miner:
Queensland Treasurer Cameron Dick has threatened to strip BHP’s mining leases if the Big Australian fails to keep investing in the state, in an extraordinary escalation of the Palaszczuk government’s battle with the mining sector over royalties.
Ahead of the release of BHP’s full-year financial results on Tuesday, Mr Dick warned the government would not hesitate to revoke existing tenures on its seven Queensland mines if they were being “misused”.
BHP and the state’s mining lobby have been at war with the Palaszczuk government for more than a year over Mr Dick’s unheralded coal royalty regime, which was introduced last year despite an election promise of no new or increased taxes.
Bravo. Use it or lose it. QLDers own the resource, not BHP, which is only the tea lady employed to extract it.
If only the Albanese government had this backbone when dealing with the gas cartel. We’d have tens of billions more in the budget and no inflation problem.
