Glenn Freeman: In this earnings season update, we're speaking dividends with Matt Hodge. Matt, thanks very much for your time today.

Mathew Hodge: Thanks, Glenn.

Freeman: Now, dividends, we've had a near record payment from BHP in its lightest half yearly results.

Hodge: Yeah.

Freeman: What's happening here?

Hodge: Iron ore price, that's it really. I think iron ore was about 70% of earnings in the period that's just gone. The price is really elevated because of the issues from 2019. China stimulated steel production, spending on infrastructure and real estate. So, steel production was up a lot, nearly double digits. And we had the issues with Vale. So, we had both supply and demand shocks with why the prices where it's at now, very profitable for the miners. To BHP's credit, they are paying a lot of that out to shareholders. Rio Tinto is the same. Fortescue is the same. And that's the right thing to do. Our argument, though, is that this is unlikely to last.

Freeman: That leads on to my next question. Can it continue?

Hodge: Well, I think if you look at the profitability of these businesses and the kind of returns that they're making, that's unsustainable. They're very, very attractive at the moment. So, that's either going to encourage new supply. In our view, the key driver is going to be longer-term demand from China is likely to fall. Given how much steel they've already put into their economy, the urbanization story has passed its peak, the peak rate, and also its infrastructure is now quite well developed. So, we don't see the same kind of demand for steel in the future as there has been to-date. That's kind of the key driver.

Freeman: There's an impending spin-off now for South Flank mine that has implications for both Iluka and BHP. Is this a big deal?

Hodge: Well, the spin-off is for Iluka's iron ore royalty over Mining Area C which is owned by BHP. So, it doesn't affect BHP in any way. They will continue to pay the royalty, whether it's Iluka or as what seems likely now the spin out into the royalty company. It matters to Iluka because we're in an environment where A, the iron ore price is high and B, passive income streams are priced by investors and richly priced. So, this is a high-quality stream of income. In my opinion, it's probably one of the highest-quality assets in the resource industry. Just given that it is a royalty, it doesn't have anywhere near the cyclicality of most businesses and it doesn't have the requirement to invest. So, on that basis, we think it's going to be quite richly priced in the market, or there's a decent chance that it will be quite favorably priced in the market. And then, that will help realize value that we've seen Iluka in a shorter period of time. And indeed, we saw yesterday when they reported that the shares were up quite a bit.

Freeman: On the back of that announcement.

Hodge: Yeah, I think that was the key driver really. The result was pretty good. But I think it's that spinning out of the royalty and people looking towards the value of that and that that is actually going to be an event that is very likely to happen.

Freeman: Actually, just to pick you up briefly on Iluka, that's probably the mining stock that was on our best ideas list most recently. The result from Iluka, what's – how have they done in other areas?

Hodge: Yeah, it went on our best ideas a couple of times last year. It went on and when it came off after the share price rose, and then there had been more market jitters and then it went back on again. So, we're fortunate that we had a couple of bites at the cherry there. I think the market is really concerned about the potential for soft demand to impact prices for zircon in particular. And so far, that hasn't really happened. It's been pretty muted. What's happened is that Iluka has reduced volumes that it's selling into the market to support those prices. And that's kind of how we would expect this business to conduct itself and behave. And really around – being quite a consolidated industry and consolidated on the supply side, that allows that to happen. So, so far, it's kind of, yes, there's some softness in demand. But in terms of the way the company is behaving and the markets are behaving, we're not seeing anything untoward there.