M&A beckons for BHP after strong six-month profit performance

BHP Group has reported an underlying profit of US$9.72 billion for the six months ending December 31, beating expectations and triggering talk of potential M&A transactions to further expand the portfolio of the world’s biggest miner.

The Australian firm has been helped by high commodities prices, although iron ore prices have halved from last year’s highs with construction activity in China slowing as the key consumer attempts to curve emissions from the property sector.

On a media briefing call following the profit call, chief executive Mike Henry told reporters that commodity price volatility will continue for some time, including for iron ore, but the broad outlook for commodity demand and pricing remains strong.

“The key driver is demand-led inflation…we see that as more enduring,” Henry said.

“We probably undercalled the degree to which the constraints would come down on steel making in China and some of the policies that were put in place that would dampen demand, but we are starting to see some of those policies relax,” he added.

BHP’s December-half profit haul resembled a 57% jump on the same period a year earlier, but paled in comparison to the 185% gain made in the June-half when iron ore prices hit a record high.

On the back of this performance, the company will pay a record interim dividend of $1.50 per share or $7.6 billion, equivalent to a 78% pay-out ratio.

Notably, BHP also said it had lowered its net debt target to $5-15 billion, which would allow it to facilitate shareholder returns and fund future deals. Henry said that ‘M&A is a lever available to us’, but the company will only look at the ‘right opportunities at the right time and at the right price’.