BHP investing $10bn into capex, exploration despite 24% profit slump

BHP’s Western Australia iron ore operations. The company is exploring potential expansions at the West Australia Iron Ore division to increase output up to 330 million tons per annum. Picture: Supplied

BHP’s Western Australia iron ore operations. The company is exploring potential expansions at the West Australia Iron Ore division to increase output up to 330 million tons per annum. Picture: Supplied

Published Aug 28, 2024

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BHP is investing $10 billion in capital and exploration expenditure over the next one year, although it will be keeping an eye on market dynamics for its key commodities which have the potential to impact on capital spend and project scheduling after profits from operations for the year to June fell 24% to $17.5bn.

After withdrawing its bid for Anglo American, BHP yesterday said it was focusing on growing its copper portfolio which saw production increase by 9% in the full year to June 2024.

The company is now expecting capital and exploration expenditure to amount to $10bn for its full year to June 2025, with half of this being invested in exploration.

From its 2026 full-year period onwards, BHP intends to invest $11bn per annum in capital investment. However, this will be dependent on market dynamics, especially at a time when mining executives the world over are keeping an eye on commodity price dips and rising costs.

“We have flexibility to adjust capital spend and phasing of projects to accommodate market dynamics and cash flow generation,” said BHP yesterday.

Nonetheless, according to BHP CEO Mike Henry, “the longer-term fundamentals that drive demand for our products remain compelling”, although volatility in commodity prices as well as demand and supply dynamics is to be expected in the short term.

“In the near term, we expect volatility in global commodity markets, with China experiencing an uneven recovery among its end-use sectors. We anticipate developed economies will face gradual relief from the lingering effects of higher interest rates in coming years,” said Henry yesterday.

Tough market conditions have been hobbling BHP, whose profits from operations in the year to June 2024 slumped by 24% to $17.5bn. Underlying earnings before interest, tax, depreciation and amortisation (Ebitda) for the period, however, inched up 4% to $29bn after revenues strengthened by 3% to $55.7bn compared to the previous contrasting period.

BHP attributed the firmer revenue for the period under review to “higher realised prices” across iron ore and copper.

Sales volumes for the two commodities also rebounded by 3% and 5% respectively, although this had been partially offset by “lower energy coal and nickel prices”, while the company also recorded lower steelmaking coal volumes after the divestment of Blackwater and Daunia in April this year.

“We have a pipeline of copper projects under development in Chile and Australia. At Copper South Australia we have a strategy to deliver up to 650 000 tons per annum of copper,” said Henry.

BHP has been investing more into its copper operations; last month, the company strengthened its copper resource position after agreeing to acquire a 50% interest in the promising Filo del Sol and Josemaria copper projects in Argentina.

The company is exploring potential expansions at the West Australia Iron Ore division to increase output up to 330 million tons per annum. It expects to complete this expansion project by the end of its 2025 full year.

Construction of BHP’s Jansen potash project in Canada is was also “ahead of the original schedule with first production now just over two years” away. However, BHP has put its Western Australia nickel operations on temporary suspension as a result of global oversupply of nickel.

During the period under review, BHP generated free cash flow of $11.9bn after investing $9.3bn.

This left the diversified resource company with some legroom to pay a a final dividend of $0.74 per share amounting to a total of $3.8bn. This brought up BHP’s total cash payouts to shareholders for the 2024 full year to $1.46 per share.

Shares in the company reversing its 11% and 22% slump in the past six months and year to date comparative to post a marginal 0.55% surged to R494.37 per share in afternoon trade on the JSE yesterday.

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