Rio Tinto And BHP Grapple With Market Dynamics In Mining Sector

The company has now slashed it dividend nearly in half to $1.70 per share, down from $3.25 per share the year before.

These headwinds have also hit rival Rio Tinto’s share price this year.

Henry hopes the company’s expansive portfolio – which includes copper, gold, nickel, and potash – meant the Aussie firm could navigate China’s sluggish economic revival and the West’s hawkish response to inflation.

Both these factors have eaten into demand for iron ore – which is a key ingredient for steelmaking – causing challenges for the world’s biggest miner by market capitalisation.

Over the past year, prices for iron ore, BHP’s top revenue-generating commodity, have retreated from peaks above $165 per metric tonne towards $100 per tonne, as global supply chains calmed following the pandemic.

Meanwhile, inflation has caused BHP’s capital and exploration expenditures to spike 16 per cent over the year to $7.1bn – with the company expecting those expenditures to rise to $10bn in the next two years.

That is partly due to $1bn per year that BHP will now have to spend on its newly acquired Oz Minerals business, with the company further investing in growth projects such as Jansen pot ash in Canada.

Despite the cost pressures, Henry told reporters BHP was “running a tight ship, necessary to weather some of the external challenges – including China’s slashed steel production and flagging property sector.

While BHP has now cut its forecast for China’s growth to 5-5.5 per cent from 5.75-6.25 per cent, the Aussie firm still expects China to produce more than a billion metric tons of steel this year for the fifth consecutive year.

By contrast, Henry believes Western demand for commodities has been hampered hurt by hawkish interest rate hikes.

“It is worth noting that combined China and India are expected to represent half of world GDP growth in the year,” he said,

He also argued that China is such “a big driver of commodity markets” that its economic drivers influence commodity markets irrespective of how much a company trades with them – predicting that, in the near term, “China’s trajectory is contingent on the effectiveness of recent policy measures”.

However, the mining boss felt it was too early to assess the impact of Beijing’s policy measures on the country’s housing market – with property giant Country Garden on the verge of defaulting.

BHP shares had slipped by 1.2 percent to A$42.98 by noon on the Australian Stock Exchange.

By Nicholas Earl via CityAM

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