Two of the mining giants in the world, Bhp Billiton and Anglo American observed a drastic increase in Profits due to the rise in the cost of commodities. Half-year profits of BHP Billiton are $3.24 billion in comparison to $412 million in the previous year. Similarly, full-year profits of Anglo American are $1.6 billion when compared to $5.6 billion loss in the year 2015.
Cash windfall for BHP
For BHP, it was a cash windfall arising due to increased cost of commodities with China’s renewed appetite and because of this, it could reward its shareholders with a bigger than expected amount.
This reflected its increasing confidence across the sector. If the marketing forecast of $3.4 billion is excluded, there was around 8 times increase in the first half of the net profit of BHP. In the previous year, first-half dividend of BHP was 16 cents which galloped to 40 cents. Other than this, BHP has reduced its net debt from $26.1 billion to $20.1 billion at the end of previous financial year. While 28% rise was observed in iron core revenues, 14 percent and 7 percent was found in case of copper and oil respectively.
Attribution of increased profits
The demand of commodities increased in China which led to increased prices. While there was above 80 percent increment observed in iron cores, coal rose by up to 300 percent.
Mr. Mackenzie further stated that production of iron core in lesser amount in the other areas was also an advantage for the companies like BHP as it could fill the gap in demand leading to increased prices in iron core.
BHP still has a lot of worries to handle
According to the chief executive of BHP Billiton, Andrew Mackenzie, improved productivity led to such amazing results.
He further reported to BBC that the results were the outcomes of 5 years plan meant for improving the productivity, redesigning the portfolio and the operating model. He claimed that commitment of company towards this plan brought fruitful results in the period of increased prices. However, the chief executive said that paying the debts and highlighting the economic and political uncertainty still remain the major agendas for the company.
He further added that the company would prefer that most of the profits should be used for strengthening the balance sheets but at the same time, it wanted to ensure commitment of high cash returns for its shareholders.
However, BHP also stated that exports of commodities may be challenged due to the increasing threat of protectionism. It further added that following the Samarco mining disaster where 19 people were killed in Brazil, resettlement of communities and restoration of environment are priorities for the company. This disaster had also polluted miles of waterways in Brazil.
Anglo American recovered from loss
Anglo American was one of the mining companies that got hit badly due to the decreased prices of commodities in 2015.
But when the commodity prices increased last year, it recovered well and became the top performer as per the FTSE 100 share index. Mr. Mark Cutifani reported that various actions related to cost, capital and portfolio have improved its balance sheet and reduced the company’s debit by 34 percent, to an amount of $8.5 billion.
