For the first time in 27 years, BHP Billiton (NYSE:BHP,ASX:BHP,LSE:BLT) has cut its dividend payout, stating that it expects weaker commodities prices to continue for an extended period of time.
The miner will reduce its dividend payout per share from 62 cents to just 16 cents. According to The Sydney Morning Herald, that’s the lowest dividend for BHP since February 2005 and the first time the company has cut its dividend since 1988.
“The changes to the dividend policy announced today reflect the Board’s assessment of the outlook for commodities and the increased financial flexibility this demands,” said BHP Chairman Jac Nasser in a statement. “While the continued development of emerging economies will underpin longer-term demand growth for commodities, we now believe the period of weaker prices and higher volatility will be prolonged.”
The announcement comes alongside the company’s first net loss in over 16 years — a whopping $5.67 billion for the half year ended December 31, 2015. Underlying profit dropped to $412 million for the same period, down from $4.9 billion for the same six months in 2014.
At the same time, BHP announced a new operating model aimed at creating a “more agile” company. “Our focused portfolio of tier one assets will now be managed through a vastly simplified operating model, positioning BHP Billiton to create new opportunities for value and growth into the future,” CEO Andrew Mackenzie said. As part of the changes, Jimmy Wilson, president of iron ore, and Tim Cutt, president of petroleum, will leave the company.
Certainly, conditions have been challenging for mining companies, and prices for the commodities that BHP deals in have been particularly hard hit. Copper prices fell nearly 27 percent in 2015, while oil prices tumbled 31 percent. The iron ore spot price has lost 38 percent over the past year.
Meanwhile, BHP has been grappling with the aftermath of a November 2015 dam breach at its jointly owned Samarco iron ore operations in Brazil, which killed 17 people. The company took an $858-million after-tax charge related to the event. “Everyone at BHP Billiton has been deeply affected by the tragedy at Samarco,” said Mackenzie in Tuesday’s release.
According to Reuters, the dividend cut was more severe than analysts were expecting. Still, Shaw and Partners analyst Peter O’Connor believes that making the cut was the right thing to do. “Given months of anguish and market debate regarding the dividend, we expect that 16 cents while disappointing, is a cash flow positive and therefore will likely be absorbed by the market,” he told the news outlet.
As of 1:44 p.m. EST Tuesday, shares of BHP were down 5.58 percent, to $23.88, in New York, but had closed up 2.62 percent to end at $17.63 in Australia. In London, shares of the miner were down 6.05 percent, at GBX746.90.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.