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BHP unveils Woodside merger plan amid huge profit surge

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Mining giant BHP has agreed on a proposal to merge its oil and gas business with Woodside Petroleum as it announced a financial year profit of $15.5 billion (US$11.3 billion).

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The company, which operates the Olympic Dam copper/gold/uranium mine in South Australia, announced late yesterday it will pay shareholders a record dividend of $2.75 per share on the back of booming iron ore production and prices.

Copper was also a strong performer with Olympic Dam, returning a solid profit and its highest annual copper production since BHP acquired the asset in 2005. It also reported its highest gold production ever for the operation.

Under the proposed merger plan with Woodside, existing BHP shareholders would own 48 per cent of the company, which would retain the Woodside name and become a global top 10 independent energy company by production and the largest energy company on the ASX.

The merger is on track to be finalised in October and will allow BHP to focus on its larger commodities business.

It is expected to deliver synergies worth more than $500 million per year.

BHP chair Ken MacKenzie said the company had a clear strategy and was in a strong position to manage its future in a time of rapid change.

“The agreement to pursue a merger of BHP’s petroleum business with Woodside will maximise the value of our oil and gas assets through increased operating scale and synergies, with a more diversified product portfolio to support the energy transition,” he said in the company’s results announcement to the ASX late yesterday afternoon.

“Now is the right time to unify BHP’s corporate structure – BHP will be simpler and more efficient, with greater flexibility to shape our portfolio for the future.”

Molten copper being poured into casts at the Olympic Dam smelter.

BHP reported an underlying attributable profit of US$17.1 billion, almost double the 2020 result of US$9.1 billion.

But the figure was reduced by US$5.8 billion of exceptional losses after tax, as a result of an impairment charge in relation to potash of US$2.1 billion, an impairment charge in relation to NSW and Colombian coal assets of US$2.2 billion, COVID-19 related costs of US$0.4 billion and the current year impact of the Samarco dam failure of US$1.2 billion.

Olympic Dam copper production increased by 20 per cent to 205,000 tonnes for the year, reflecting improved smelter stability and strong underground mine performance, the company said.

This was up from 172 kilotons of copper in the 2020 financial year, which was 7 per cent up on 2019.

It also achieved record gold production of 146,000 ounces in FY21.

The production surge resulted in an underlying EBIT of US$285 million for the year ended June 30.

However, Olympic Dam uranium production fell 11 per cent for the year to 3267 tonnes. This was mainly due to a 40 per cent production slump in the June quarter when just 614 tonnes of uranium was produced.

Copper production at Olympic Dam for the 2022 financial year is expected to decrease to between 140 and 170 kt as a result of a planned major smelter maintenance campaign (SMC21 )and subsequent ramp-up planned between August 2021 and February 2022.

The company says the $500 million SMC21 project is getting underway and will create 1500 jobs over the next few months.

BHP CEO Mike Henry said the great set of financial results was due to the outstanding effort of 80,000 people across the company and thousands more suppliers.

“Most importantly, our improved results were achieved safely, with 2021 being our second consecutive full financial year with zero fatalities in BHP operations,” he said.

“We achieved several production records and our four major capital projects were executed on time and on budget.

“We have progressed exploration and development in copper and nickel, commodities which are favourably leveraged to the mega-trends of electrification and decarbonisation.”

BHP’s copper exploration targets include a major copper target at Oak Dam, about 65km south of Olympic Dam.

BHP has a market capitalisation of $151.2 billion. Its shares opened at $51.33 this morning on the ASX but soon lost ground sharply to be down more than six per cent at noon at $48.15.

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