Shareholders in BHP Billiton and Rio Tinto may soon reap the rewards of the unexpectedly strong performances posted by both the mining giants during the first half of fiscal 2014.
After posting a stellar performance for the December half BHP Billiton has indicated that special rewards could be dispensed to shareholders during the upcoming year.
The mining giant enjoyed underlying profits of USD$8.1billion for the first half of fiscal 2014, for a staggering leap of 83 per cent.
While the exclusion of a number of one-off factors trims this figure down to USD$7.8 billion, it nonetheless remains well ahead of analyst expectations, representing an increase of 31 per cent compared to the previous corresponding period.
BHP Billiton chief executive Andrew Mackenzie said that special rewards could be on the way for shareholders on top of the standard “progressive dividend”, and that capital management would come under consideration should the company’s net debt fell to USD$25 billion.
The company’s current net debt is USD$27.1 billion, with BHP expecting this amount to dwindle to USD$25 billion by June 30.
“If we deliver that level of indebtedness towards the end of this financial year I will come back to you at the full year with the authority of our board to talk about future capital management,” Mackenzie said.
BHP joins fellow mining giant Rio Tinto in flagging the possibility of extra rewards for shareholders on the back of bumper results.
Rio’s underlying earnings gained 10 per cent year-on-year to hit USD$10.2 billion, surpassing market expectations by nearly half a billion.
In the wake of this result, Rio chief executive Sam Walsh hinted that Rio Tinto could provide shareholders with special rewards on top of a USD$1.92 dividend, which represented a surprise increase of 25 cents, or 15 per cent.
Walsh said that improvements to free cash flow meant that the Rio board now had new “options” to consider for shareholder returns in 2015.
Analysts expect any special rewards from BHP and Rio to assume the form of an on-market buyback of shares as opposed to a special dividend, which from the company's perspective only confers the benefit of a one-time bump to share prices.
Should both Rio and BHP decided to proceed with special rewards for their shareholders, it will mark the first time that they engage in capital management since 2011.