BP. Bp Plc

By Rhiannon Hoyle 

SYDNEY-- BHP Group Ltd. chalked up an 87% rise in first-half net profit but sounded a warning over the U.S.-China trade conflict.

This should be another solid earnings season for global miners, whose investor returns and stock prices have been helped by elevated prices for some commodities--but markets have been jumpy, largely over concerns about the world's two biggest economies.

BHP, the world's largest listed miner by market value, posted a profit of $3.76 billion in the six months through December, its best first-half number in four years and up sharply from the year-earlier $2.02 billion. That figure, though, was weighed down by $2 billion in one-off items, mainly linked to the U.S. tax overhaul.

Commodity sales have yet to be directly hit by the U.S.-China trade conflict, said BHP Chief Executive Andrew Mackenzie, although the company sees a further rise in protectionist policies as a key risk to its 3.25%-3.75% forecast for global growth this year. As negotiations resume this week, the U.S. is seeking broad economic changes from Beijing and holding up the threat of higher tariffs. A deepening dispute would likely depress the global economy and hurt commodity markets over the longer run, Mr. Mackenzie said on a call with reporters.

"Free trade does tend to lift all boats," he said.

For the U.S. economy, BHP cited concerns after a strong 2018: "The expansionary impact of tax cuts will progressively fade and trade policies remain unpredictable."

The miner forecast China's economic growth to slow modestly in 2019, with weaker exports partly offset by easier monetary and fiscal policy.

Hurt by some production disruptions, underlying profit from continuing operations fell 8% to $4.03 billion--missing the $4.21 billion median estimate of analysts polled by The Wall Street Journal. Still, BHP continued to generate solid cash flow from its mines and oil fields and kept its interim dividend unchanged at 55 cents a share, eclipsing analyst expectations. Late last month it paid a special dividend of $1.02, funded from the sale of its U.S. shale operations--mostly to BP PLC, for more than $10 billion.

Miners' improved earnings in recent years have given them firepower to cut debt, spend on deals and new projects--and boost dividends. Investors are expecting a continuing cash bonanza as more reports roll in.

Glencore PLC and Anglo American PLC are due to post 2018 earnings in the coming days, and BHP's Anglo-Australian rival Rio Tinto PLC next week. Vale SA delayed the release of its earnings until next month after one of its waste dams burst last month, killing more than 160 people.

South32 Ltd., the metals- and coal-mining company spun out of BHP in 2015, last week raised its midyear payout and said it will hand out another special dividend. Higher commodity prices drove a 17% rise in its first-half profit.

The trend has given mining stocks a lift this year. BHP's stock, up 8% in 2019, on Tuesday reached its highest price since 2011. The most recent driver has been a sharp rise in the price of iron ore--which accounts for roughly two in every five dollars BHP earns--as an output cut by Vale following the dam disaster spurs supply concerns.

That won't be reflected in BHP's earnings, though, until it reports full-year numbers in August. Its first-half engine was stronger petroleum markets. Crude oil rose sharply during 2018 on concerns of looming shortages, and BHP said its average first-half oil price was up 29% from a year earlier.

BHP's large oil-and-gas division, which typically accounts for one-fifth of earnings, sets it apart from its global mining rivals.

Some operational setbacks in other divisions capped first-half profits. Disruptions including a train derailment in a remote part of Australia, an acid-plant outage at its Olympic Dam copper mine in Australia and a plant fire at its Spence mine in Chile meant a productivity hit totaling $460 million.

With those unplanned outages, the company said it now expects productivity to be broadly flat in the current fiscal year--but will strive to lift it through technology and automation improvements, increased equipment utilization and a reduced reliance on labor hire.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

(END) Dow Jones Newswires

February 19, 2019 05:17 ET (10:17 GMT)

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