BHP Billiton boosts payout on commodities surge

By James Regan

SYDNEY (Reuters) - Mining giant BHP Billiton rewarded shareholders with a bigger than expected payout on Tuesday, reflecting a growing confidence across the sector as rising commodity prices delivered a cash windfall.

BHP and other miners are basking in a welcome surge in commodity prices on the back of a renewed appetite in China for imported raw materials, with iron ore prices climbing more than 80 percent in 2016 and coal up as much as 300 percent.

However, BHP chief executive Andrew Mackenzie said the company's No. 1 focus was still on paying down debt, highlighting an uncertain economic and political outlook.

"We preferred, on balance, most of it (extra cash) to go towards the strengthening of our balance sheet," Mackenzie told reporters. "But we were very keen to signal to our shareholders our commitment to strong cash returns."

BHP's underlying first-half net profit galloped nearly eight-fold to $3.24 billion from $412 million a year earlier, just missing market forecasts for $3.4 billion.

It declared a first-half dividend of 40 cents, up from 16 cents a year ago, outpacing a consensus of 34 cents per share.

"The numbers are good, eclipsing consensus expectations," said mining analyst Peter O'Connor of Shaw and Partners.

SECTOR IMPROVES

The result comes after rival Rio Tinto surprised with its payout and a share buyback earlier this month, while Anglo American on Tuesday reported a 25 percent jump in annual earnings and a roadmap to resume dividend payments.

Andy Forester, senior investment officer at fund manager Argo Investments, said he was comfortable with the dividend.

"They're just being pretty disciplined at the moment," he said. "Everyone's still cautious on how sustainable this uptick's going to be."

BHP cut net debt to $20.1 billion from $26.1 billion at the close of the last financial year.

"With several of our commodity exposures currently trading above our long-term forecasts and with considerable economic and political uncertainty ahead, our bias for lowering debt remains," Mackenzie said.

Revenue from iron ore mining, its biggest division, was boosted by a 28 percent rise in its ore selling price over the period, while copper was up 14 percent and oil 7 percent.

However, the iron ore market was likely to come under pressure in the short term from moderating Chinese steel demand growth, high port inventories and incremental low cost supply, Mackenzie warned.

Guidance for copper production was also under review due to a strike underway at its majority-owned Escondida mine in Chile, now in its 12th day, he said.

BHP also approved a $2.5 billion bond repurchase plan for U.S. dollar denominated notes up to 2023, saying early repayment would extend its average debt maturity profile and enhance its capital structure.

(Reporting by James Regan; Additional reporting by Sonali Paul; Editing by Richard Pullin)