Australia’s biggest coal mining corporation BHP Group [ASX:BHP] revealed that it plans to sell off at least another two of its coal mines.
The miner cut its dividends by 40% to 90 US cents a share, well under previous distributions of US$1.50 each.
Still, BHP shares were worth $48.46 at the time of writing — evidence of the miner’s long-standing dominance in the industry. However, as the coal industry shifts into a new era of bolstered renewable energy targets, the question remains how smooth the transition will really be.
BHP’s share price has increased by 13% in the past year, and it is 12% above the market average:
BHP’s profit slump and dipping dividends
Coal mining giant BHP Group reported its half-year financials ending 31 December 2022. Operational revenue had churned 16% (US$4.8 billion) less than at the same marker for 2021, with a total of US$25.71 billion.
BHP reported profit after tax was also down by 24% to US$6.46 billion.
Underlying EBITDA dropped 28% to US$13.2 billion, and the group’s EBITDA margin was 54%.
Operating cash flow decreased by 41%, and capital and exploration expenditure increased by 5%. The group’s net debt climbed by 13% to US$6.9 billion. Expenditure guidance for the full year remains unchanged at US$7.6 billion.
The coal mining corporation decided to give out 90 US cents per share (fully franked) as interim dividends for the period, which had dropped by 40% since the previous period’s US$1.50.
Net tangible assets were US$8.91 per fully paid share, compared with US$10.59 in December 2021.
Where to from here?
Bad weather conditions and a continued tight labour force have been a recurring theme in the commodities industry, and BHP acknowledged its ongoing.
The coal mining group said Jansen Stage 1 Potash Project in Canada is tracking to plan, with first production brought forward to 2026, while Stage 2’s feasibility study has begun.
$5.7 billion in capital expenditure has been slotted for Jansen Stage 1, a project expected to produce approximately 4.35 Mt of potash annually.
The group’s weaker-than-expected profit came with the strict China lockdowns impacting iron ore pricing, yet BHP’s CEO Mike Henry remains positive for the future. He commented:
‘We expect domestic demand in China and India to provide stabilising counterweights to the ongoing slowdown in global trade and in the economies of the US, Japan and Europe. The long-term outlook for our commodities remains strong given population growth, rising living standards and the metals intensity of the energy transition, including for steel making raw materials.’
With rising expenditures and slumping profits — and the fast-approaching trajectory pointing to less need for coal in the net-zero carbon emissions future — BHP has confirmed it has decided to sell its Daunia and Blackwater metallurgical coal mines jointly owned with Mitsubishi in Queensland.
Instead, the group has its newly acquired renewable-focused company OZ Minerals, to focus on as the world makes its transition to renewable energy.
The Australian commodity boom
Our resources expert and trained geologist, James Cooper, thinks the Australian resources sector is set to enter a new commodities boom brought on by the ‘Age of Scarcity’.
Similar patterns that occurred 20 years ago are happening again.
The next big mining boom is predicted to happen in the next few years.
The same investors that got rich last time are preparing to make their move — don’t let them retake the monopoly.
You can learn from James’ experiences AND access an exclusive video on his personalised ‘attack plan’ — right here.
If that isn’t enough to sate your curiosity, check out last year’s interview with James and Greg at Ausbiz.
For The Daily Reckoning