BHP Billiton forced to sacrifice dividend policy

The Anglo-Australian miner's shares sank by 6% following dire numbers from the FTSE 100

The City has turned the screw on BHP Billiton as the Anglo-Australian miner tumbled to annual losses of $5.7bn (£4bn) and slashed its dividend for the first time in 15 years.

The shares sank by 6 per cent or 48.1p to 746.9p following dire numbers from the FTSE 100 giant, which has joined a host of industry peers – including Anglo American, Rio Tinto and Glencore – in cutting shareholder payments or scrapping them altogether in the face of plunging commodity prices and flagging economic growth.

Alongside BHP’s first loss in 16 years – compared with a $5.35bn profit in 2014 – the annual results included a $1.2bn charge following last November’s dam disaster in Brazil at the company’s Samarco joint venture – the country’s worst-ever environmental catastrophe.

The bursting of the dam at Minas Gerais sent millions of tonnes of mine waste surging through the jungle and into the Rio Doce river, as well as flattening the village of Bento Rodrigues with the deaths of at least 17 people. More pain for the company is likely as BHP and its joint venture partner Vale are in the final stages of negotiations with the Brazilian government over a potential $5.1bn clean-up and compensation fund.

BHP chief executive Andrew Mackenzie cut the shareholder payout by 75 per cent to 16 cents a share – disappointing those who were hopeful of receiving around 35 cents, as well as ending the company’s progressive dividend policy. The payout has grown every year since the 2001 merger between BHP and Billiton. The last cut in the dividend came in 1988.

Bracing investors for a prolonged period of weaker prices and higher volatility in the mining industry, Mr Mackenzie warned: “We need to recognise we are in a new era – a new world – and we need a different dividend policy to handle that.”

The ratings agency Standard & Poor’s cut its credit score for BHP earlier this month and said that further action was likely unless the miner shored up its finances.

The main driver of the miner’s huge losses was a $4.9bn hit on its US oil and gas assets, which had already been flagged up before the results.

Steve Clayton, head of equity research at fund manager Hargreaves Lansdown, said the new dividend strategy was “more realistic”. He added: “The policy gives a strong hint that BHP is not on the hunt for acquisitions – otherwise, it would be expected to keep more of its powder dry. Brazil has talked of pursuing Samarco for billions in restitution for the dam spill, so there is another large claim on the company’s cashflows, on top of shareholders, taxation and the needs of the business itself.”