JOHANNESBURG (miningweekly.com) – One of the world’s largest mining companies, BHP Billiton, has posted a $6.4-billion full-year loss on weaker commodity prices, offshore US asset impairments and the Samarco dam failure.

Speaking to journalists during a global conference call on Tuesday, CEO Andrew Mackenzie said the financial year ended June 30 was riddled with challenges; however, the company expected to recover somewhat in the 2017 financial year.

The ASX-listed mining giant swung to an attributable loss after tax of $6.38-billion during the year under review – a 434% contraction on the profit of $1.9-billion reported in 2015.

BHP reported a basic loss a share of 120c in the 2016 financial year, down from the basic earnings a share of 35.9c in 2015.

The losses have been attributed to $7.7-billion in after-tax exceptional items, including a $4.9-billion impairment charge against the carrying value of BHP’s onshore US assets, a $2.2-billion income statement knock from the dam failure at joint venture (JV) Samarco Mineração’s iron-ore operations in Brazil and $570-million for “global tax matters”.

Further, weaker commodity prices across the board had a $10.7-billion negative impact on the group’s earnings, with revenue falling 31% to $30.9-billion during the 12 months under review.

Despite this, Mackenzie believes the company delivered a “solid performance in a challenging year”.

“The last 12 months have been challenging for both BHP Billiton and the resources industry. 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,” he said.

BHP reported underlying earnings before interest, taxes, depreciation and amortisation (Ebitda) of $12.3-billion for the 2016 financial year, a 44% contraction on the underlying Ebitda of $21.9-billion reported in the prior year.

An underlying Ebitda margin of 41% was reported for the year under review.

Underlying attributable profit of $1.2-billion was achieved in the 2016 financial year, down 81% from $6.4-billion, while the reported underlying basic earnings a share came in at 22.8c, a drop of 81% from the 120.7c reported in the prior year.

Unit cash costs across the group were down 16% year-on-year.

During the year under review, productivity gains of $437-million were achieved and the company remains on track for an overall $2.2-billion gain over the two years up to the end of the 2017 financial year.

“We continue to make considerable improvements to productivity. The new operating model is already accelerating the replication of best practices across the organisation and will support the expected delivery of a further $1.8-billion of productivity gains and increasing free cash flow in the 2017 financial year,” said Mackenzie.

A reduction in operating costs and working capital allowed the group to deliver free cash flow of $3.4-billion in 2016 – an amount expected to double to over $7-billion in 2017.

BHP’s balance sheet also remains strong, with net debt of $26.1-billion, broadly unchanged from December 2015, he said.

In addition, capital and exploration expenditure was cut by 42% to $6.4-billion, with a further decline to $5-billion expected in the 2017 financial year, before rising again to $6.2-billion in the 2018 financial year.

On a cash basis, BHP reported a 40% decline in capital and exploration expenditure to $7.7-billion in 2016. This is forecast to decline to $5.4-billion in the 2017 financial year.

BHP remains optimistic of improvements in the 2017 financial year, with the company positioned to grow value and returns.

“We continue to pursue capital-efficient latent capacity opportunities, which will support volume growth of up to 4% next year, excluding our onshore US assets, where we continue to defer activity to maximise value.

“In addition, we have progressed high-return growth projects, with investment decisions on the Mad Dog 2 and Spence Growth Option projects expected by the end of next calendar year,” Mackenzie noted.

The Escondida Los Colorados Extension copper project had also been approved in June, while BHP reported the June commissioning of the Spence Recovery Optimisation project.

The development of the Southern Mine Area at Olympic Dam will continue into the 2017 financial year, while BHP expects to complete the additional capacity at WAIO’s Jimblebar mining hub in the December quarter.

“Over the past five years we have actively reshaped our portfolio, and we are confident we have the right mix of commodities, assets and opportunities to create substantial value over time.

“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,” he added.

SAMARCO
Meanwhile, response efforts at Samarco continue with good progress being made on community resettlement, community health and environment restoration; however, it is unlikely that Samarco will obtain the necessary approvals to restart its operations in this calendar year, with a $1.2-billion provision made as at June 30, to cater for the uncertainty around potential restart.

Samarco and its JV parent companies BHP Billiton Brasil and Vale had jointly commissioned an external investigation into the cause of the failure of the Fundão tailings dam at the Samarco iron-ore operation in Minas Gerais on November 5, 2015, which resulted in 19 fatalities and substantial damages across the region.

It is expected that the findings from the investigation will be available in the next few weeks.

Mining and processing operations remain suspended.

“While technical studies carried out to date indicate operations can restart safely, this will only occur when stabilisation work has been completed to a satisfactory standard and all regulatory approvals are granted and accepted by the relevant authorities and communities,” Mackenzie explained.

In the interim, Samarco implemented 90% of the 41 programmes set out by a private autonomous foundation established following a March framework agreement between Samarco, Vale, BHP Billiton Brasil, the federal government of Brazil, the states of Espirito Santo and Minas Gerais and other public authorities.

To date, about two-thirds of the houses and buildings in the Mariana and Barra Longa region have been rebuilt or restored, while Samarco continues to build a series of dykes downstream of Fundão to capture sediment and reduce turbidity.

“A compensation programme has been developed under the framework agreement to ensure affected people receive fair and reasonable compensation. Preliminary compensation has already been paid to those most severely impacted,” he added.

Under the 15-year renewable agreement, Samarco is responsible for funding the foundation with contributions of $620-million in 2016, $370-million in 2017 and again in 2018 and $155-million for sewage treatment and landfill works from 2016 to 2018.

The yearly contributions for 2019, 2020 and 2021 will be between $250-million and $500-million, depending on the remediation and compensation projects undertaken.