Ordinarily when a company reports its biggest profit in five years and a record dividend it would be welcomed by the market. But mining giant BHP (BHP) saw its share price decline by nearly 2% on Tuesday to £17.64 with the company admitting a softening of demand in important parts of the world, particularly China.

In the year to 30 June, BHP reported a 124% rise in attributable profit to $8.3bn, after last year’s results were dented by heavy impairment charges related to the sale of its US shale assets and costs associated with the Samarco dam disaster in Brazil.

It also declared a record dividend of 78 cents per share, equating to a 6.2% dividend yield.

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The results and dividend were in line with expectations, and while such performance was welcomed by analysts, they also picked up on the fact that productivity fell by $1bn, in contrast to the $1bn improvement in productivity that was expected.

Productivity in mining is defined as more output for fixed input or the same output for less input.

Though such is the health of the business, one of the world’s biggest miners, BHP continues to spend billions on project developments and exploration despite the gloomy economic backdrop, with plans to spend $8bn a year to in part find the next big discovery.

AJ Bell investment director Russ Mould said that while the figure is considerably less than the $20bn-plus it used to spend during the previous commodities boom, it is ‘still a very significant amount of money’.

He added, ‘big miners like BHP have historically thrived in more different market conditions thanks to having world-class assets with low operating costs.

‘If commodity prices fall sharply, someone like BHP would have a better chance of still being able to operate profitability versus many of its competitors which could struggle.’

BHP has focused on streamlining its business in recent years with a big focus on reducing costs, something which should, according to Mould, put it in a ‘stronger position should there be another commodities downturn’.

However, he adds that the negative market backdrop at the moment would suggest BHP may find it hard to keep growing earnings at the current rate, particularly in the short term.

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Issue Date: 20 Aug 2019