Miners are struggling due to a sharp fall in commodity prices, sparked by concerns that a slowdown in the Chinese economy could leave a surplus of raw materials.
Andrew Mackenzie, chief executive of the London-listed company, said the last 12 months have been challenging and that commodity prices are likely to remain volatile, even if long-term demand remained robust.
The miner swung to the net loss in the year to the end of June after making a profit of $1.9bn a year earlier. It is the company’s first annual loss and the first time it has not increase its dividend since Australia’s BHP and the Anglo-Dutch company Billiton merged in 2001.
The loss was driven by $7.7bn of writedowns and charges including $4.9bn for the reduced value of its US shale operations and $2.2bn for the collapse of the Samarco dam, which killed 19 people, polluted a river valley and devastated communities in Brazil’s Minas Gerais state in November.
“All of us at BHP Billiton remain deeply saddened by the Samarco tragedy,” Mackenzie said. “The company is fully committed to the framework agreement and its programs to remediate and compensate for the impacts of the Samarco dam failure. Good progress is being made on community resettlement, community health and environment restoration.”
BHP said the Samarco iron ore mine, owned jointly with Brazil’s Vale, will not get approval to reopen this year after the dam’s failure spilled billions of gallons of mining waste into a valley causing death and homelessness.
The company was forced to write down the value of its shale assets because of the tumble in the price of crude oil to less than $50 a barrel. BHP diversified into the oil and gas business in 2012 with an investment in US shale assets. Mackenzie said the company will hold on to the assets because investors liked its range of businesses.
“The last 12 months have been challenging for both BHP Billiton and the resources industry,” Mackenzie, a Scot who took charge of the company in 2013, said.
“Nevertheless, our results demonstrate the resilience of our portfolio and the diverse ways in which we can create value for shareholders despite low commodity prices.
“While commodity prices are expected to remain low and volatile in the short to medium term, we are confident in the long-term outlook for our commodities, particularly oil and copper.”
Mackenzie said the industry was starting to recover after the price of key commodities such as iron ore and coal hit 25-year lows in January.
The BHP boss said there is “some sense that prices have stopped falling as opposed to being in freefall” and the company could start the year with “real momentum”.
He added: “Steadily, the end of the supply creation on the back of the China boom is coming to an end, product by product, and that’s putting more of a floor under price than perhaps perceptibly existed maybe a year ago.”
Despite the record loss, shares in BHP rose 1.7% to £10.60 on the back of Mackenzie’s confidence.
Jordan Hiscott, chief trader at online trading platform Ayondo Markets, said: “Despite the monumental loss the perception is that the worst is over in terms of impairment charges and write-downs. It’s also pertinent that BHP still has a yield and pays a dividend, given the extreme low interest rate environment in which we currently find ourselves.”
The commodity rout forced BHP Billiton to scrap its policy of not cutting dividends by slashing the half-year payout in February. It cut the annual dividend by 76% to 30 cents a share, in line with a new policy of linking payments to profits.
Nicholas Hyett, analyst at stockbroker Hargreaves Lansdown, said: “With dividends now a function of profits, bottom line growth will be key to future shareholder returns. For now that is being supported by a ruthless cost cutting campaign, but there’s only so far that can go.
“With capital expenditure falling rapidly, the group seems to be pinning its hopes on a recovery in commodity prices to boost earnings in the medium term.”
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