BHP Billiton slashes dividend, drops payout pledge

CNBC with Reuters
BHP Billiton cuts dividend, announces shakeup
BHP Billiton cuts dividend, announces shakeup
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The bright spots in BHP's H1 results
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New Aussie TradeMin on BHP numbers and more

Top global miner BHP Billiton slashed its interim dividend by 75 percent, the first reduction since 1988, amid a rout in commodity markets that has sent prices of oil, iron ore, coal and other raw materials tumbling.

The world's biggest diversified miner reported a net loss of $5.67 billion for the first half of the 2016 financial year, its first loss in more than 16 years, and cut its interim dividend to 16 cents. Analysts had expected a dividend of 31 cents.

BHP ditched its progressive dividend policy, which held that it would pay a steady or higher dividend at each half-year result, to protect its solid 'A' credit rating, the highest in the decimated mining sector.

"Finally they've admitted that perhaps this slump in commodities is going last for a little bit longer than short-term," Robert Brierley, head of research at Patersons Securities in Perth, told CNBC's The Rundown.

BHP will also cut capital and exploration expenditure down to US$5 billion in FY17 from US$7 billion in FY16.

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"Slower growth in China and the disruption of OPEC have resulted in lower prices than expected," BHP Chief Executive Andrew Mackenzie said in a statement.

"Our new dividend policy and transparent capital allocation framework are part of a broader strategy to help BHP Billiton manage volatility," he said.

Underlying attributable profit plunged to $412 million from $4.89 billion a year earlier, missing analysts' forecasts for around $585 million, as commodities prices plummeted to multi-year lows.

Standard & Poor's cut BHP's credit rating to 'A' from 'A+' this month and warned it might downgrade the rating further if the company failed to take more steps to preserve cash and review its dividend policy.

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With cuts in operating expenditure, capex and dividend, BHP will be freeing up some $10-$12 billion of cash in the next two years, which will not only improve its debt and operating positions, but also potentially open up M&A opportunities, said metals and mining analyst at Shaw and Partners, Peter O'Connor.

With compound annual growth rate at 9 percent a year in the last 10 to 15 years that is now down to 4-5 percent, BHP will need M&A or other projects to top up that growth, O'Connor told CNBC's Squawk Box.

BHP cautioned that it expected a prolonged period of weaker prices and higher volatility and announced a simplified company operating model.

The miner also faces hefty costs from a dam disaster in Brazil at its Samarco joint venture with Vale <VALE5.SA>, which killed 17 people in that country's worst environmental disaster. It took an after tax charge of $858 million relating to the disaster.