BHP has announced an enormous loss, as well as massive management shakeups that have seen division heads get the chop as it changes its dividend policy.
In one of the largest announcements, all of Australia’s operating assets will now be merged into a single division – Minerals Australia.
The miner also reported a US$5.67 billion loss today as it falls in line with the rest of the weakened mining industry.
It recorded profits of US$4.265 billion in the previous corresponding period.
Revenues fell 37 per cent for the operator, as it recorded US$15,712 billion for the half year.
The miner also announced a financial cost of US$858 million resulting from the Samarco Dam failure,
It is also changing its dividend policy, adopting a 50 per cent dividend ratio policy that will rephrase distributions to shareholders, with dividends more closely linked to the performance of the business.
“The changes to the dividend policy announced today reflect the Board’s assessment of the outlook for commodities and the increased financial flexibility this demands,” BHP chairman Jac Nasser said.
“While the continued development of emerging economies will underpin longer-term demand growth for commodities, we now believe the period of weaker prices and higher volatility will be prolonged. The adoption of a dividend payout ratio will further support BHP Billiton’s financial strength, while providing flexibility at the bottom of the cycle and ensuring discipline at the top.”
BHP CEO Andrew Mackenzie added,” Our new dividend policy and transparent capital allocation framework are part of a broader strategy to help BHP manage volatility”.
“We have already responded decisively to the changed conditions.
“The divestment of US$7 billion of assets and the demerger of South32 leaves us with a focused portfolio of large, low-cost, long-life assets in a set of favoured commodities. We are operating our assets more productively with US$10 billion of gains achieved since 2012.
“We expect to realise a further US$2.1 billion of gains in the 2016 financial year. We will also reduce capital expenditure in the 2016 and 2017 financial years by a total of US$3.5 billion, while retaining a suite of high-return, value enhancing projects.”
In the wake of this BHP has announced a ‘simplified operating model’.
A simpler structure
BHP CEO Andrew Mackenzie explained that “these changes are a continuation of our simplification journey”.
“They are made possibly by the recent demerger of South32 and well-timed asset divestments, and reflect our continued commitment to improve productivity.”
These changes include the merger of all Australia’s BHP assets into a single division – Minerals Australia, which will be run by Mike Henry, the current president of BHP coal.
Henry will now be in charge of BHP’s iron ore and coal assets, Olympic Dam, Nickel West, and the Indomet coal project.
Nickel West was listed as a non-core asset in the miner’s presentation.
A similar process will be carried out in the Americas, with all US and South American operations merged into the Minerals America, to be run by Daniel Malchuk, the current president of copper.
Due to these senior management changes Jimmy Wilson, the current head of iron ore, will leave the company.
Current head of petroleum Tim Cutt will also leave BHP, to be replaced by Steve Pastor; BHP explaining, “As the role of President Petroleum will change to become more closely focused on operation and will no longer include direct oversight of functional and business administration, it has been agreed that Tim Cutt will also leave the company.”
Mackenzie thanked both Wilson and Cutt for their service.
“Jimmy Wilson has transformed Western Australian Iron Ore into one of BHP Billiton’s most important businesses and has led the way in introducing a simpler, more effective organisational model which continues to drive significant value for our shareholders,” Mackenzie said.
“As president petroleum, Tim Cutt has led the US onshore industry in achieving productivity gains that were unheard of just a few years ago.”
Dean Dalla Valle has been assigned to lead BHP’s response to the Samarco dam failure in Brazil, , however he will still retain responsibility for the Jansen potash project in Canada.
Speaking to a BHP spokesperson they explained that these changes and ‘simplifications’ are unlikely to affect operational employees.
“These changes are centred on management, so we are not foreshadowing any operational changes at this time.
“Instead it is about eliminating a duplication in effort at the senior level, there will be a minimal impact on operational employees.”
The comment echo Mackenzie’s statements on the new model requiring “fewer layers and hence fewer people to lead and run the organisation”.
On the ground
At its operations, despite the falling iron ore price BHP recorded a 6 per cent jump in production due to Jimblebar operating at full capacity, while cash costs fell by a quarter to US$15.21 per tonne, with full year guidance predicting unit cash costs of US$15 per tonne.
BHP does not expect the iron ore market to significantly improve in the future, as “iron ore prices [are] likely to remain low on currently weak demand from China and rising seaborne costs”.
It generated US$5.349 billion in revenues for the half year ended 31 December 2015, down from US$8.418 billion in the previous period.
The miner drove down unit cash costs by 17 per cent for its Queensland operations, forecasting an FY16 unit cost of US$59 per tonne.
Although a ‘convergence’ event at BHP’s Broadmeadow coal mine did not help the situation.
It remained positive on metallurgical coal as “supply is being curtailed, however production cuts are required to offset weakening demand”.
In the long term BHP expects continuing high-cost US and Chinese supply to exit the market, providing more opportunity for Australian supply.
BHP recorded revenues of US$2.337 billion for the period, down from US$3.143 billion in the previous year.