World's biggest miner BHP Billiton reports $6.4 billion record loss

Melbourne, Australia Updated: Aug 16, 2016, 09:32 AM(IST)

The miner said with cost cuts and a reduction in net debt, it expects to generate more than $7 billion in free cash flow in the year to June 2017. Photograph:( Getty )

BHP Billiton reported a record $6.4 billion annual loss today, hammered by a bad bet on shale, a dam disaster in Brazil and a commodities slump, but said it expects its cash flow to more than double this year.

The world's biggest mining company said with cost cuts and a reduction in net debt it expects to generate more than $7 billion in free cash flow in the year to June 2017, at current prices for iron ore, copper, coal, oil and gas.

"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," chief executive Andrew Mackenzie said in a statement.

Excluding $7.7 billion in writedowns and charges, underlying profit still slumped 81 per cent to $1.2 billion for the year to June 2016 from $6.4 billion a year ago, hit by weak prices for its major commodities. The company said weaker commodity prices wiped $US10.7 billion off its pre-tax earnings.

The major costs came from cutting the value of its US shale oil and gas assets ($US4.9 billion), the Samarco iron ore disaster in Brazil ($US2.2 billion) and money set aside for global taxation reassessments ($US570 million).

Even excluding those write-downs, BHP Billiton's underlying net profit crashed 81 per cent to $1.22 billion.

The underlying profit was the weakest since the merger of BHP and Billiton in 2001, but better than analysts' expectations of around $1.1 billion.

Shoring itself up against tough markets, BHP, like rival Rio Tinto, in February abandoned its long-held policy of never cutting dividends, and flagged instead it would pay out at least 50 percent of underlying profit from then on.

It announced a full-year dividend of 30 cents, which it said was more than the minimum under its new payout policy, although it was just below analysts' forecasts around 32 cents.

Net debt rose slightly from December to $26.1 billion, which was higher than the $25 billion that analysts had expected, but BHP said it expects net debt to fall in the 2017 financial year.

"We continue to pursue capital-efficient latent capacity opportunities which will support volume growth of up to four per cent next year, excluding our onshore US assets where we continue to defer activity to maximise value," Mackenzie said, referring to its shale oil and gas business. 

BHP Billiton was formed through the 2001 merger of Australia's mining and oil giant BHP and UK-based mining group Billiton. The merger created the world's largest diversified resources company, with operations in 20 countries spanning the aluminum, coal, copper, ferro-alloys, iron ore, titanium, nickel, diamond, and silver mining sectors, as well as the oil, gas, and liquefied natural gas markets.

BHP Billiton has posted a statutory net full-year loss of $US6.385 ($8.3 billion) on significant one-off write-downs.

The final dividend of 14 US cents per share, fully-franked, down 77 per cent from last year's final payout of 62 US cents was declared.

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