BHP Group’s BHP earnings per American Depositary Share (ADS) of $3.57 in fiscal 2020 (ended Jun 30, 2020), which lagged the Zacks Consensus Estimate of $3.91. The bottom line also declined 2% from the prior fiscal year. For fiscal 2020, underlying attributable profit from continuing operations was $9.06 billion in fiscal 2020, down 4% from $9.47 billion in fiscal 2019. Gains from favorable exchange rate movements, improved productivity and lower unit costs, offset by lower prices and volumes led to the overall earnings decline.
The company’s attributable profit came in at $8 billion including an exceptional loss of $1.1 billion. The exceptional loss is related to the impairment of Cerro Colorado, a provision for cancellation of power contracts as part of a shift towards 100% renewable energy at Escondida and Spence, COVID-19 related costs and the impact of the Samarco dam failure. Attributable profit in fiscal 2019 was $8.3 billion, which included an exceptional loss of $818 million.
Revenues & Margin Performance
Revenues for fiscal 2020 totaled $42.9 billion, down from $44.3 billion in the prior fiscal. The top line missed the Zacks Consensus Estimate of $46.02 billion.
Profit from operations in fiscal 2020 were $14.4 billion, down 11% year over year owing to lower prices and volumes (including copper grade and petroleum field declines), increased deferred stripping depletion at Escondida, and an increase in the closure and rehabilitation provision for closed mines. Favorable impacts of exchange rate movements, better productivity, and lower unit costs somewhat mitigated these impacts. Underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) were $22 billion for fiscal 2020, down 5%, year on year.
Balance Sheet & Cash Flow
Cash and cash equivalents as of Jun 30, 2020 amounted to $13.4 billion, down from the $15.6 billion at the end of fiscal 2019. Total interest-bearing liabilities were $27 billion, up from the $25 billion as of Jun 30, 2019. Capital and exploration expenditure totaled $7.6 billion, up 1% from the prior fiscal. Net operating cash flow for fiscal 2020 was $15.7 billion compared with $17.9 billion in fiscal 2019. The company provided capital and exploration guidance at $7 billion for the fiscal 2021 and at $8.5 billion for the fiscal 2022.
As of the end of fiscal 2020, net debt was $12 billion, up from $9.4 billion reported as of fiscal 2019 end due to the application of IFRS 16 Leases.
The company announced dividend of $1.20 per share, equivalent to a 67% payout ratio.
BHP Group plans to concentrate its coal portfolio on high quality coking coals and is looking at options to exit BMC, New South Wales Energy Coal (NSWEC) and Cerrejón. It is also likely to divest oil and gas assets that are mature.
At the end of fiscal 2020, BHP Group had six major projects under development in petroleum, copper, iron ore and potash with a combined budget of $11.4 billion over the life of the projects. First production from Atlantis Phase 3 was achieved in July 2020. The Spence Growth Option and South Flank are expected to deliver first production within the next 12 months.
Fiscal 2021 Production & Cost Guidance
In fiscal 2021, BHP Group expects to produce between 244 and 253 Mt of iron ore compared with 248 Mt produced in fiscal 2020. The company’s petroleum production guidance for fiscal 2021 is expected in the range of 95 to 102 MMboe. The company anticipates copper production between 1,480 kt and 1,645 kt in fiscal 2021, reflecting a decline of 5-14% from production in fiscal 2020. While production guidance of Metallurgical coal for fiscal 2020 is anticipated between 40 and 44 Mt, the same for energy coal is expected in the band of 22-24 Mt. Nickel production for fiscal 2021 is now expected between 85 kt and 95 kt, which reflects an improvement of 6-19% from fiscal 2020 production levels.
Conventional Petroleum unit cost is projected at $11-$12 per barrels of oil equivalent (boe) for fiscal 2021, up 13-23% over fiscal 2020. Escondida unit cost is projected at $1.00-$1.25 per pound, reflecting a range of decline of 1% to growth of 24% over fiscal 2020. Queensland Coal unit cost for the fiscal is expected at $69-$75 per ton, up 2-11% from fiscal 2019. WAIO unit cost guidance is projected at $13-$14 per ton, indicating year-over-year increase of 3-11%.
The company expects most major economies to contract in 2020, barring China. BHP Group’s strong cash flow and focus on lowering debt will help it sail through these turbulent times. The recent surge in iron prices also bodes well.
BHP’s shares have gained 17.9% over the past year compared with the industry’s growth of 28%.
Zacks Rank & Other Key Picks
BHP currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Some other top-ranked stocks in the basic materials space include Golden Star Resources Ltd. GSS, Eldorado Gold Corporation EGO and Yamana Gold Inc. AUY, each carrying a Zacks Rank #2 (Buy).
Golden Star Resources has an expected earnings growth rate of 12.5% for 2020. The company’s shares have surged 88.4% in the past year.
Eldorado Gold has an expected earnings growth rate of 2,225% for 2020. Its shares have returned 38.8% in the past year.
Yamana has an expected earnings growth rate of 76.9% for 2020. The company’s shares have soared 91.8% in the past year.
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