A strong increase in profits has been reported by two of the world’s largest miners – BHP Billiton and Anglo American – boosted in part due to the rise in commodity prices.
BHP reported half-year profits of $3.24bn, up from $412m a year earlier. Speaking the BBC, Chief Executive Andrew McKenzie stated that improved productivity also helped deliver the strong results. In addition to this, Anglo American reported full-year profits of $1.6bn, compared with a $5.6bn loss in 2015.
Impact of China
BHP’s Mr McKenzie has said that the results are in-line with a five year plan by the Company to ‘improve productivity and redesign our portfolio and operating model’. He also added ‘Our steadfast commitment to this plan has positioned us to take full advantage in a period of higher prices’.
Commodities such as iron-ore and coal have risen in price by over 80% and up to 300% respectively. This, in part, has been fuelled by an increase in demand by China. Mr McKenzie also added ‘China’s improved a little bit, but I would say much of what’s going on in terms of the iron-ore price is down to less production of iron-ore elsewhere and companies like us have been able to fill that gap’.
“The Chinese economy is going quite strongly at the moment, partly down to stimulus that was stated probably about three quarters back, and that has really pushed up the premia for high quality iron ore and metallurgical coal and they’re our principle products.”.
Analysts at BHP said in its statement, that China’s economic growth was expected to moderate in the coming year, with the housing and car markets expected to cool. The statement also mentioned ‘exports may be challenged by the rising threat of protectionism.’.
The Company’s reported results also included a $155m charge in relation to the Samarco mining disaster in Brazil, which lead to the deaths of 19 people.
“Providing our support for the long-term recovery of the communities and environment affected by the Samarco tragedy on 5 November 2015 remains a priority for BHP Billiton,” the company said.
It also added “Substantial progress has been made on community resettlement, community health and environment restoration.”.
BHP’s move back into the black has mainly been caused by price increases in the items it mines from the ground – iron-ore, coal et cetera. Over the last 12 months, the price of iron-ore has doubled which has benefited the Company significantly to the tune of approximately £3.9bn.
In a radio interview, Mr McKenzie stated ‘This is a strong set of results we’ve been working at for the better part of four or five years,” he told me. Indeed the company has cut costs and sold off various part of the business. “Much is down to what we’ve done in improving our safety and productivity’.
Despite this, it stands to reason that miners’ profits are driven by commodity prices. It is also important to highlight that BHP does have issues to resolve elsewhere.
The Company is still involved in the clean up at the Samarco mining site in Brazil. Part-owned by BHP, the incident crushed a community both physically and emotionally, leaving miles of waterways polluted and 19 people dead. Costs of the clean up are anticipated to be in the order of tens of billions of pounds, not including the reputation costs going forward.
Anglo American on the other hand, was one of the worst companies affected by the 2015 fall in commodity prices. However, it soon became the strongest performer on the FTSE-100 share index after prices picked up again.
“We continue to benefit from the performance of a number of other world class assets across the bulk commodities of iron ore and coal, as well as nickel,” said the company’s chief executive, Mark Cutifani.
Similar to BHP, the move from loss to profit has been as a result of the sale of mines, along with new cost-cutting measures being adopted internally.
“The decisive and wide-ranging operational, cost, capital and portfolio actions we set out in 2016 – to sustainably improve cash flows and strengthen the balance sheet – have enabled us to reduce net debt by 34% to $8.5bn.” said Mr Cutifani.