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The World’s Biggest Miner Just Posted Its Worst-Ever Loss

BHP Billiton (NYSE:BHP) reported on Tuesday a massive loss of US$6.385 billion for the fiscal year ended June 30, after multi-billion impairments on U.S. shale assets and a burst dam in Brazil made it swing to its worst loss on record from the US$ 1.91-billion profit for the previous financial year.

BHP—the world’s biggest miner by market capitalization—recognized an impairment charge of US$4.9 billion against the value of its onshore U.S. assets, reflecting altered price assumptions amid high volatility and much lower prices in the gas and oil industry.

The miner was also hit by a US$2.2-billion net charge by the Samarco dam failure in which a joint venture of BHP suffered Brazil’s worst mining disaster when the dam burst and killed 19 people and released billions of gallons of mining waste into the valley.

The commodity price crash added to BHP’s headwinds in the period mid-2015 through end-June 2016, and the miner slashed dividends by 76 percent to US$0.30 per share.

Upon announcing its half-year results in February, BHP said that it was bracing itself for a prolonged period of lower commodity prices, and therefore adopted a dividend policy to link dividend payments to underlying profits in order to ensure financial flexibility and protect the balance sheet.

Full-year underlying profit—excluding the one-off impairment charges—plunged 81 percent to US$1.215 billion. Still, it beat the US$1.04-billion average estimate of 19 analysts polled by Bloomberg.

Capital and exploration expenditure dropped 42 percent to US$6.4 billion, with further reduction to US$5 billion expected in the 2017 financial year.

Looking ahead, BHP expects global growth until the end of 2016 to “remain modest and subject to downside risks, including the uncertain economic consequences of ‘Brexit”.

On a positive note, based on current spot prices and a forecast reduction in net debt, BHP expects to double free cash flow to more than US$7 billion next year, from the US$3.4 billion free cash flow it reported for 2015/2016.

By Tsvetana Paraskova for Oilprice.com

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