BHP Billiton increased dividend year to June

Friday, Aug 30, 2013

Global resources giant BHP Billiton, unlike many of its smaller peers, was able to increase its dividend for the year to June.

The dividend was raised 3,6% to US$1,16/share, though attributable profit fell 29,5% to $10,9bn and net operating cash flow was 25% weaker at $18,25bn.

Peers Anglo American and GlencoreXstrata both kept their interim dividends unchanged from the previous year. Anglo American reported a 28% drop in underlying earnings to $1,3bn in the six months to June and held interim dividends at US32c. GlencoreXstrata's pro forma (taking the merger with Xstrata into account) net earnings fell 39% to $2bn in the six months to June and the interim dividend was also unchanged, at US5,4c/share.

Though Billiton made big production gains in its key commodities, realised prices were weaker than a year ago.

Like its peers, the group has reduced costs and capital expenditure to focus on profits. In the past year it cut $2,7bn from controllable costs, including items like labour and contractors, corporate overheads and exploration.

CE Andrew Mackenzie does not quantify job losses. He says the focus was on value and productivity. Gains in productivity among employees will lead to more job security and less use of contractors.

Billiton plans to spend $16,2bn on capital projects and exploration this year compared with $21,7bn in the past year. It previously said it would spend $18bn this year. It will complete current growth projects but has not approved any major new projects, though it has decided to continue spending on the Jansen potash project in Canada so that production can be brought on stream when market conditions are more favourable. Potash is mostly used in fertiliser. For the next three years Billiton will spend $2,6bn, or about $800m/year on Jansen to complete two shafts and surface infrastructure and it will seek minority parties who can add value, says Mackenzie.

Liberum Capital said in a note to clients that further spending on the Jansen potash project was negative, given the general view on its present value.

Jansen will be the world's biggest potash project and it needs higher prices than at present in order to be profitable, Bank of Nova Scotia commodity market specialist Patricia Mohr told Canada's Globe & Mail last week.

In SA, Billiton's interests are its joint venture with Anglo American in manganese mining and processing, as well as its aluminium smelters and thermal coal mines. None of these is a significant contributor to group profits.

Billiton is not investing significant amounts in its aluminium, manganese and nickel division because the price outlook for those minerals is modest, says Mackenzie. Management is focusing on maintaining positive cash flows in this division and any parts of the business that are not cash-positive will be closed, he says. A lot of the value in those businesses lies in their processing facilities.

A year ago it was reported that an investment bank was seeking buyers for the aluminium and manganese assets but Mackenzie has never confirmed these businesses were for sale. They are not among Billiton's defined four key commodities of copper, coal, iron ore and petroleum.

On a conference call with analysts, Mackenzie agreed some of the thermal coal assets were not "tier one" quality, which was a factor in simplifying the portfolio, but he declined to go into details of individual mines.

He said Billiton's cash flows and balance sheet were strengthening and there was no need to raise money through asset sales. But some assets may have more value to other parties than to Billiton, and there were "conversations" about them.

He did not rule out acquisitions but said they were not part of Billiton's central plan.

Liberum Capital's mining team rates Billiton and GlencoreXstrata as a "buy" and Anglo American as a "hold" as the retrenchment process at Anglo Platinum is still not final.

Liberum said though Billiton was not cheap at last week's share price of around ?19,08 (R303,37), there were no dangers it would derate compared to its peers. "Billiton has been ahead of the game in disposals and there may be scope for cash injections from additional sell-downs (most likely in noncore petroleum)," Liberum said.

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