Daily Management Review

Australian Iron Ore Behemoths Face Declining Earnings And Dividends


Australian Iron Ore Behemoths Face Declining Earnings And Dividends
After China's COVID lockdown drove down iron ore prices, Australia's three largest iron ore producers, BHP Group, Rio Tinto, and Fortescue, are expected to report a sharp decline in earnings, which will result in a reduction in their payouts to shareholders.
According to projections from Visible Alpha and Vuma Financial, Rio Tinto and BHP Group's half-year earnings are expected to fall by 48% and 28%, respectively, while Fortescue's half-year earnings are predicted to fall by about 16%.
Given the uncertainty surrounding the strength of China's recovery following the lifting of its strict COVID-19 curbs, the miners are anticipated to provide a mixed outlook for 2023.
"We haven't seen too much hard data from China just yet, but I think there's enough for the miners to be more optimistic - cautiously so," said Adrian Prendergast, an analyst at Morgans Financial in Melbourne.
Additionally, the companies must contend with rising costs for supplies and fuel as well as a labor shortage that may have an impact on their plans for expansion.
Iron ore's average realised prices dropped significantly in the six months leading up to December, which hurt profits.
According to Goldman Sachs analysts, weaker earnings and a push by the major diversified miners to fund growth through acquisitions or building their own projects will cause dividend payouts to decline.
The recent $3.3 billion acquisition of Canada's Turquoise Hill by Rio to take control of its Mongolian copper mine and BHP's A$9.6 billion offer for copper and gold producer OZ Minerals are two examples of how the mining industry has seen an increase in buyout activity.
BHP is anticipated to report attributable profit from all operations of $6.82 billion, down from $9.44 billion, when it releases its first-half results on Feb. 21.
Fortescue is expected to report its first-half net profit on February 15; it is expected to fall from $2.78 billion to $2.34 billion. Financial reporting for BHP and Fortescue occurs from July to June.
Rio Tinto's underlying half-year profit, which is reported on a calendar year cycle, is projected to fall 48%, from $9.21 billion to $4.77 billion. On February 22, Rio will report.