Opinion: BHP’s torrents of cash gives it lots of options in an uncertain world | Stephen Bartholomeusz
and offloading most of its energy coal assets to create a smaller but less carbon-intensive portfolio.The continuing asset base, however, is high-returning – it achieved record earnings before interest, tax, depreciation and amortisation margins of 65 per cent and an overall return on capital employed of 48.7 per cent – and is a powerful cash machine. It generated record free cash flows of $US24.3 billion.
That gives BHP a gearing ratio at balance date of only 0.7 per cent, well below its already-conservative target range for net debt of $US5 billion to $US15 billion.. BHP has an underutilised balance sheet and the capacity, albeit not the necessity, to deploy it via acquisitions. BHP is pinning its faith in a volatile global environment – one in which tighter monetary policies threaten global growth – on China stabilising and underpinning demand for commodities this financial year.Even if the bid were to succeed, BHP would still have a lot of latent balance sheet capacity, even with its conservative gearing targets.
In the last financial year it invested $US6.1 billion in its existing portfolio. This financial year it expects to spend $US7.6 billion. In the 2024 financial year its forecast is for $US9 billion of capex and exploration spending and beyond that an average of $US10 billion as the group ramps up its organic growth rate. It’s also putting together a portfolio of investments to early-stage exploration and developments that are focused on copper and nickel deposits.
In the WA iron ore business C1 costs rose from $US12.98 a tonne to $US15.05 a tonne but, in an inflationary environment, BHP says it is still the world’s lowest-cost iron ore miner.
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