BHP making loads of money

Published: 27 Aug 2018

BHP’s headline profit for the year ending June may be down – but that’s mostly to management mistakes in the USA. The company is making loads of money out of iron ore and coal.

Along with Glencore and Yancoal, BHP is one of the big coal producers in Australia – and globally. Unlike those other two, BHP is mostly in higher quality metallurgical or coking coal for steelmaking rather than thermal coal for power generation. But right now it’s making plenty of money out of both types.

BHP’s headline profit is US$3.7 billion for the year – down 37%. But that decline is due to writing off US2.8 billion on the company’s disastrous foray into shale oil and gas in the  USA. While they also lost US$650 million on the ongoing disaster of the dam collapse at the Samarco iron ore mine in Brazil. And, believe it or not, they had to write off US$2.3 billion in saved-up tax credits in the USA – because President Trump cut the US company tax rate so the tax credits are now worth less.

If we disregard the one-off issues, the company’s profit increased 33% to US$8.9 billion from US$6.7 billion.

In Queensland coal, the company had cash flows after operating costs of US$3.6 billion on revenue of US$7.4 billion. That’s a huge cash margin! For the single but large Mt Arthur Coal mine in NSW, the company also had a huge margin of US$652 million on revenue of $US$1.6 billion. In Western Australian iron ore the company did hugely well too – US$8.9 billion of net cash on revenue of US$14.6 billion.

The company says that its costs are increasing somewhat in Queensland Coal, while they are flat in WA iron ore. But it is forecasting a return to declining operating costs in the coal industry – they are targeting US$57/tonne by 2022-23, down from about US$68/tonne now. One wonders whether this is based on cutting wages via more contracting out. But the company already relies very heavily on contractors, and key contractors have recently lost legal battles with the union over their “permanent casuals” to whom they denied leave entitlements and pay below union EBA rates. Or is the company thinking it can automate aspects of its coal operations like the truck fleets?

Despite making loads of money the company is giving no indication it wants share the bonanza with its workforce or the communities in which it operates.