BHP posts $15.4bn profits

Record profits announced by the Anglo-Australian diversified mining concern BHP Billiton, boosted by cost controls and greater demand from China.

This undated BHP Billiton handout photo received on August 18, 2008, shows BHP Billiton's Olympic Dam copper and uranium operation at Roxby Downs in South Australia. BHP Billiton Ltd, the world's biggest mining company, is set to deliver a record annual profit in excess of USD 15 billion, underpinned by a strong result from its petroleum division.  AFP PHOTO/BHP Billiton    RESTRICTED TO EDITORIAL USE ONLY GETTY OUT *** Local Caption ***  111167-01-08.jpg
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SYDNEY // The Anglo-Australian diversified mining concern BHP Billiton, which is a locked in a bid to take over rival Rio Tinto in what would be the world's second-biggest takeover, yesterday announced record profits boosted by Chinese demand. The world's biggest mining corporation said cost controls and its emphasis on high-margin growth projects had propelled its bottom line to record profits of $15.4 billion (Dh56.5bn) for the full year to June 30. But BHP also warned of weaker global economic growth in the short term.

"Our results were outstanding in the context of a challenging supply environment, which was characterised by unexpected disruptions, rising input prices, skills shortages and the further devaluation of the US dollar," the company said. BHP said higher operating costs, such as fuel, staff and equipment replacement, had inflated costs across the group by $1.18bn for the year. "Strong global demand for resources continues to provide cost challenges for the whole industry. This is mainly due to rising prices for inputs such as diesel, (steelmaking) coke and explosives, and shortages of skilled labour," it said.

Cost inflation has emerged as an Achilles heel for the mining industry reaping big profits from global demand for minerals such as copper and iron ore. Rising costs are also expected to cut into Rio Tinto's first-half earnings, which are due next week. Rio operates in many of the same sectors and insists BHP's unsolicited all-share offer, worth around $123bn, is too low. The EU is due to give its anti-competition ruling on Dec 9, a key date in the long-running takeover saga.

Marius Kloppers, the chief executive of BHP, said he believed the proposed takeover offer for Rio Tinto made more sense than ever. Mr Kloppers refused to comment on speculation that BHP could be interested in bidding for platinum producers Lonmin or Impala Platinum Holdings and said the Rio Tinto deal was the best M&A opportunity the miner could see at the moment. "In the context of the longer-term growth, the demand challenges that the world will deliver and the supply challenges that I have described, the combination of BHP Billiton and Rio makes more sense than ever," he said.

Mr Kloppers said weaker nickel prices may force some high cost operations to close, but that BHP's Ravensthorpe laterite nickel operation in Western Australia state would remain profitable and the company saw a "manageable" supply and demand balance for the commodity. The 45-year-old head of BHP has pledged to spend at least $90bn to expand output. BHP, which set records for annual production of seven commodities, said the effects of current weakness in developed economies on demand should be minimal.

"The key drivers of this performance are volume growth and higher prices in base metals such as copper, petroleum and iron ore, as well as very strong manganese prices," said Kieran Daly and Rebecca O'Dwyer, analysts at Investec Securities in London, in a report last week. BHP shares climbed 62 cents, or 1.6 per cent, to 38.60 Australian dollars on the Australian stock exchange in Sydney. "In the short term, we expect prices to remain high relative to historical levels, albeit with higher volatility," BHP said. "Looking to the longer term, demand for our commodities is expected to remain strong."

* With agencies