The BHP Group Ltd (ASX: BHP) share price is on watch after the miner reported a heavy decline of profit.
BHP is one of the world’s leading miners which produces iron ore, coal and copper. It’s also working on potash.
FY24 result
Here are some of the highlights from the 12 months to 30 June 2024:
- Revenue increased 3% to US$55.7 billion
- Underlying EBITDA grew by 4% to US$29 billion
- Profit from operations down 24% to US$17.5 billion
- Underlying attributable profit up 2% to US$13.7 billion
- Attributable profit down 39% to US$7.9 billion
- Final dividend of US$0.74, down 7.5%
- Full-year dividend of US$1.46 per share, down 14%
BHP explained that revenue rose primarily due to higher realised prices in iron ore and copper, where sales volumes increased 3% and 5%, respectively. However, this was partially offset by lower energy coal and nickel prices, as well as lower steelmaking coal volumes after the divestment of Blackwater and Daunia.
The ASX miner experienced a global inflation rate of around 4%, driven by higher labour costs. This was somewhat offset by lower commodity-linked raw materials such as diesel and acid.
Productivity initiatives and cost discipline allowed the business to help mitigate ongoing cost pressures, with unit costs around 2.9% higher across its major assets.
BHP explained that attributable profit decreased due to an exceptional loss of US$5.8 billion, comprising a US$2.7 billion impairment of its Western Australia Nickel and a US$3.8 billion charge related to the Samarco dam failure. This was partially offset by a US$0.7 billion (after tax) gain on the sale of the Blackwater and Daunia mines. Those impairments are detractors for the BHP share price.
Cash flow and balance sheet
The company also saw net operating cashflow of US$20.7 billion, an increase 11% compared to FY23, when it made significant income tax finalisation payments relating to FY22.
BHP said its net debt reduced by US$2 billion to US$9.1 billion thanks to the net operating cash flow and proceeds from the divestment of Blackwater and Daunia.
Outlook for the BHP share price
The company believes that the long-term demand outlook for its commodities remain positive, it expects population growth, urbanisation, rising living standards and the infrastructure required for decarbonisation and electrification will “drive demand for steel, non-ferrous metal such as copper and fertilisers.”
On its important expert markets, the ASX miner said:
The Chinese economy has been volatile since the zero-Covid policy was eased in December 2022.
The March quarter saw a better-than-expected recovery in a range of sectors important to commodity demand, raising hopes of a strong year overall. However, that momentum did not carry over fully to the June quarter. That was especially the case in the steelintensive real estate sector, whereas copper-intensive sectors like automobiles, power machinery, consumer durables (e.g. air-conditioners) and the electricity grid have seen solid growth. The authorities have acknowledged that more policy support is needed to fully embed the recovery.
For FY24, the key question is how effective this latest policy push will be. The demand picture has been more balanced in India, where an investment upswing is in place and commodity demand has been accordingly robust.
The Indian economy has healthy momentum as the country moves towards a general election, which is expected to be held in the first half of CY24.
Outlook for the BHP share price
BHP shares have suffered this year, falling around 20% in 2024 to date at the pre-open price. If there’s ever a good time to invest, it’s when the share price is lower and commodity prices are weak. I like the moves to expand in copper. So, interested investors may be best served to look at the mining giant today. However, I’m cautious about the fact that Chinese demand is weak and iron supply is rising, particularly with increased African iron ore on the horizon. There are other ASX dividend shares I’d prefer to buy.
