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BHP Dividend Details
Efforts to address Samarco tragic event: BHP Billiton Limited (ASX: BHP) and Vale has 50% interest in Samarco operations which has a three tiered tailings dam complex. Recently, the Fundao dam failed and the downstream Santarem dam has been affected leading to major significant release of mine tailings, flooding the community of Bento Rodrigues and consequently affecting other communities downstream. The incident confirmed one fatality with an additional members of the workforce missing. Management reported that it would offer instant necessary support to address the fatality and is making efforts for the cleanup and subsequently investigate the site. News related to a warning about the design flaw in the tailings dam system given two years ago, is now being floating around. This incident has brought the shares under pressure in last few days. However, BHP along with Vale plans to create an Emergency Fund estimated to manage the losses.
On the other hand, BHP has built a diversified assets base and is developing four major projects worth of US$7.0 billion in Petroleum, Copper and Potash as of September 2015 quarter. The group acquired 100% working interest on 9 blocks in the Western Gulf of Mexico Lease while 17 are still subject to regulatory approval and also got approval for operational permits extension for Cerro Colorado till 2023. BHP is also improving its balance sheet and recently priced Eur 2.0 billion of subordinated fixed rate reset notes across two tranches, GBP600 million of subordinated fixed rate reset notes and USD 3.25 billion of subordinated fixed rate reset notes across two tranches, and is diverting these proceeds to cover its debts.
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Samarco’s contribution to BHP as of September quarter (Source: Company Reports)
Other Update: The company has filed an application with the Supreme Court of Queensland challenging the $186 million of royalties and $102 million of interest levied by the Queensland Office of State Revenue on BHP with regards to share of the BHP Billiton Mitsubishi Alliance coal joint venture. The outcome will reveal any unfavorable impact on the company.
Stock performance: The shares of BHP Billiton fell over 17.39% (as of November 11, 2015) in the last one month alone impacted by the Samarco incident. Samarco operations can produce over 30.5 Mtpa of iron ore pellets and has the ability to process 32 Mtpa of concentrate. With this incident, BHP Billiton is reviewing its iron ore production guidance for fiscal year of 2016. On the other hand, the group has built a solid asset diversified base and the group’s share of Samarco production was 14.5 Mt while Samarco contributed only 3% of the BHP’s underlying EBIT (FY15). Accordingly, the affected mine seems to have a low impact on BHP’s overall production capacity. It is to be seen whether BHP brings any changes to the progressive dividend policy (dividend yield of 8.05 %.) depending on the payment against any fines and working and remediation costs. At the same time, we also don’t want to ignore that BHP is undertaking cost reduction efforts in petroleum and seems to be on track to meet its production targets with US$200 million less capital investment considering the commodity prices pressure. We believe the group still has a solid long term potential. Accordingly, we give a “BUY” recommendation on the stock at the current price of $20.61
BHP Daily Chart (Source: Thomson Reuters)
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