Mining giant BHP (BHP) hiked its interim dividend 55% as iron ore prices soar amid speculation of a new commodities supercycle.

Profit in the six months to 31 December for the FTSE 100 company hit a seven-year high of $9.75 billion after jumping 17%, helping to underpin an interim dividend per share of $1.01, up from $0.65 in the same period in 2019.

The increase in profit is mostly attributable to rapidly rising iron ore prices. Iron ore has soared almost 85% in the past year spurred on by demand from China, the world’s biggest iron ore consumer, prompting talk of long-run demand hikes. Iron ore is a key component in the manufacture of steel.

Investors latched on the optimism, pushing BHP shares nearly 1% higher to near decade highs of £22.49.

CAST IRON ECONOMICS

Miners can profitably dig the commodity out of the ground for around $15 per tonne. At its peak in December, iron ore prices hit $185 per tonne, with BHP’s rivals Anglo American (AAL) and Rio Tinto (RIO) also feeling the benefit.

BHP’s shares have surged over 30% since the start of November when the iron ore price started taking off, which explains the more muted reaction to its results today.

The surging iron ore prices have also helped BHP cut net debt by 7% to around $11.8 billion.

Analysts believe if that iron ore and copper prices – another key commodity for BHP which has enjoyed a strong run – can hold at current levels, BHP’s net debt could fall significantly below its target $12 billion to $17 billion range by the end of its financial year in June, potentially paving the way for another bumper payout when it reports its annual results.

Jefferies analyst Christopher LaFemina said, ‘If commodity markets stay strong, as we expect, a larger capital return will be likely with full-year results in August.’

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Issue Date: 16 Feb 2021