BHP Interview: Dividends, Copper & M&A

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By Rudi Filapek-Vandyck, Editor

On Tuesday, BHP Group ((BHP)) reported a -23% drop in first-half profit with its interim dividend trimmed to an eight-year low.

The result contained very few genuine surprises and most analysts have merely tinkered with forecasts and valuations post the release.

FNArena was granted the opportunity to interview Vandita Pant, Chief Financial Officer at the Big Australian since 1 March 2024.

Question: Many retail investors would own BHP Group ((BHP)) shares for a very long time and they would expect to receive lots of dividends. The payout is currently at the bottom of the range and it’s also declining now in multiple consecutive years. Maybe you could provide some background on why the decision on the dividend has been taken, and should retail investors now be a little bit more cautious with what to expect from BHP in terms of dividends?

Vandita Pant: First thing I would say is we know our shareholders are multi-generational holders of BHP stock, and we are a very long-term oriented company as well.

We are very clear in our policy, which has been in place now for eight years, that whatever we make, 50% of that goes to our shareholders, which is the minimum payout ratio.

That is the stability our shareholders can bank on.

In the years when we make a lot of money, when commodity prices are good, we pay our shareholders even more additional dividends, with buybacks, et cetera.

Our track record speaks for itself. In the last eight years since our new capital allocation policy came into being, we have returned in cash US$83bn to our shareholders.

 And this is not even counting the Woodside Energy ((WDS)) in specie dividend, which if you add it, would make it US$100bn returned.

There is another part. As you said, we have some very long-term shareholders, and they’re tied to the success of BHP, and want to see value and return and growth coming into the company.

That’s the reason we are now in a reinvestment phase; investing on behalf of our shareholders in future facing commodities, like copper.

We are the world’s largest producer of copper, growing at the fastest pace with projects that are really attractive. We are able to invest in those projects on behalf of our shareholders for good value.

I would say, as we move into a reinvestment phase, we will still have stability and certainty of a 50% payout.

We’re especially excited about growth opportunities in copper. In the last three years to June this year, we would have increased our copper volumes by 24%.

Just in this half, our copper growth is 10% half on half. More interestingly, 40% of our EBITDA has been contributed by copper.

So, now we have the luxury of having the best iron ore business in the world, which is our Western Australia iron ore business, operating at the lowest cost and highest margin of any Pilbara player, coupled with 40% contribution coming from copper.

With a lot of growth in front of us, all of this will generate value for our shareholders.

Question: Now that you mentioned copper, BHP has communicated a road map for further growth in copper. I noticed a few things are happening at Prominent Hill. Maybe you can give us some colour about what exactly is happening at Prominent Hill and with BHP’s copper aspirations generally?

Vandita Pant: We have a great suite of projects and options in copper; in South Australia, in Chile, in Argentina, in the US, really fantastic projects.

I would say, overall, you would have seen that we are industry leading in our delivery on projects.

Our track record on projects is industry leading on three counts. On cost, we manage it better than most of our competitors. On schedule. And thirdly, most importantly, on business outcomes from the projects on all three measures, industry wide, BHP comes out at the top.

In terms of the performance at Prominent Hill, what you’re referring to is a small project which was part of Oz Minerals. When we took it over, Oz management had talked about around US$400m of capital spend on that project.

When we took it over, we took the view from the independent expert advice, which was around US$650m. We have increased that by around US$200m.

It’s a small increase in the scheme of things, as BHP’s capex spend is US$10bn for the year.

The important thing is, we are very forensically looking into this, so it doesn’t get repeated for other small projects. Overall, our track record on projects is industry leading.

Question:  Am I correct in deciphering the message that BHP doesn’t need acquisitions to take maximum benefit from the coming copper mega trend?

Vandita Pant: In the current market, it is increasingly challenging to do a large global M&A deal and still create value.

You are rightly hearing that we have very attractive and now maturing options for growth, which are organic, and we are 100% focused on developing these in copper and in potash, while delivering in other parts of our great business.

I would say our current focus is completely on organic options. But, of course, like any major company, you would expect us not to comment on any specific situation, so I’ll leave it there.

Question: I’ll squeeze in one last question: for a company like BHP, what is happening in the economies of India and China remains all-important. Can you share some of your insights about both countries?

Vandita Pant: I am quite bullish on India. India continues to be the fastest growing major economy in the world.

The government just announced a budget with urban infrastructure spending to go up by 50% which bodes very well for our met coal business; 40% of our met coal goes to India.

In terms of China, the pro-growth stance of the Chinese government is clear. We think that starts to push progressively for change in the composition of the economy and boost domestic demand.

Sectors like infrastructure, machinery, EV exports, etc have been doing well.

Last year there was a lot of weakness in construction. We think that drag starts to come out now, and we are seeing some early signs of recovery in data, like housing sales and housing sale prices, coming through.

The reality for China is last year was the sixth year of 1 billion tons of steel production, yet again, and that is very good news for iron ore demand, and for BHP and its shareholders.

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