Melbourne/Hong Kong — BHP will target higher oil output and can accelerate development of growth projects in other key commodities after using stronger profits to cut debt and reward investors.
The world’s biggest miner has nine major projects under way and is spending almost $1bn in 2018 on exploration, CEO Andrew Mackenzie said on Tuesday.
Capital expenditure is forecast by the company to rise by as much as 18% to $8bn in 2018.
Even after trimming debt and lifting returns, "there has been money left over to grow the company in the future, and there’s lots more to come", Mackenzie said after BHP reported full-year underlying profit jumped 33% to a four- year high.
"We have a cupboard full of options for the short, medium and long term in all of our commodities," he said.
Rio Tinto and Anglo American are advancing new projects and expansions as the sector begins to embrace growth.
Anglo has approved a $5bn copper mine in Peru. Rio is building a bauxite mine in Australia and leading a $5bn expansion of Mongolia’s Oyu Tolgoi copper and gold operation.
Melbourne-based BHP could fund improved shareholder returns and underwrite developments after net debt was cut by $15bn over two years to within the company’s target range, Mackenzie said.
BHP paid a record final dividend, though confirmed it would be later in 2018 before it set out plans to return to investors the bulk of about $11bn in proceeds from the sale of its shale assets in the US.
The sector’s efforts to lower debt and sell unwanted assets since the 2015 commodities crash means companies are well positioned to maintain returns, ride out price volatility and pursue growth, according to BlackRock’s World Mining Trust, which holds BHP shares.
BHP and its largest competitors "have better profitability, are better placed financially with lower debt and that means you do start to look at returns to shareholders first, and then at growth," said Peter O’Connor, an analyst at Shaw and Partners.
BHP’s shares declined 1.9% in Sydney trading — as the mining benchmark index lost 1.4% — after executives said the additional investor returns would not be immediate and the company flagged higher production costs, as well as delays to a planned $2bn programme of productivity gains.
THERE HAS BEEN MONEY LEFT OVER TO GROW THE COMPANY IN THE FUTURE, AND THERE’S LOTS MORE TO COME.
Net profit slumped on more than $5bn of impairment charges tied to the shale unit and to US tax reforms.
Conventional oil is a priority for BHP as it seeks to reverse a production decline and capture rising prices, Mackenzie said.
The producer, with operations in the Gulf of Mexico and Australia, forecasts output will fall as much as 6% this fiscal year as fields decline.
"We will look to accelerate production now in order to capture favourable prices" and could consider an acquisition to add output, the BHP CEO told analysts.
The producer is also seeking to add copper production with the market likely to move into a structural deficit early in the next decade, which will send prices higher.
BHP’s Olympic Dam operation in South Australia is suffering an outage at an acid plant and the impact is being assessed, the company said in a statement.
BHP has a pipeline of about $4bn of potential projects across commodities to upgrade existing operations, including at Escondida, the world’s number one copper mine, and its Australian iron ore operations, the company said in a presentation in May.
A longer-term list includes $15bn of possible developments in copper to potash.
Despite global trade tension, there is little cause for alarm on the outlook in China, the top consumer, of commodities, Mackenzie said.
"We’re not seeing any slowdown in China, perhaps a little bit in copper. Everything else is going well," he said.