The Rising Influence of Rising Affluence

[DewDiligence]

BHP Reports In-Line FY1H12 Results

[BHP reported FY2Q12 and FY1H12 production volume on 1/19/12 (#msg-71091712), so the FY1H12 revenue and earnings were already known within a fairly tight range. BHP’s own PR on the FY1H12 financial results is at http://www.bhpbilliton.com/home/investors/reports/Documents/2012/120208_BHP%20Billiton%20Results%20for%20Half%20Year%20Ended%2031%20December%202011.pdf ; the CC slides are at http://www.bhpbilliton.com/home/investors/reports/Documents/2012/120208_BHPBillitonInterimResultsFY12Presentation.pdf .]

http://online.wsj.com/article/SB10001424052970204136404577209513343598028.html

›FEBRUARY 8, 2012
By ROBB M. STEWART

MELBOURNE, Australia— BHP Billiton Ltd. said its financial first-half profit fell 5.5%, the first drop in two years for the world's biggest mining company as it was hit by rising costs, production disruptions and falling commodity prices.

The Anglo-Australian company Wednesday maintained its long-held view that demand for its products will remain robust, but said price volatility was likely to persist as the European sovereign debt crisis and general weakness in manufacturing and construction across key markets weighs on sentiment.

"We have delivered a robust result...despite significant volatility," Marius Kloppers, chief executive of the Melbourne-based company, said during a conference call. "Sentiment changed from one month to another during that period."

Mr. Kloppers said BHP expects a boost in production volumes over the short- to medium-term from "enormous latent capacity," as disruptions that held back output of oil, coal and copper are overcome. Already the company is targeting another record year of iron-ore production as it continues to expand operations in Australia's remote western Pilbara region.

Net profit declined to US$9.94 billion in the six months through December from US$10.52 billion a year earlier, while revenue increased 9.7% to US$37.48 billion from US$34.17 billion, the company said. It declared an interim dividend of 55 cents a share, up from 46 cents in the same period the year before.

BHP turned in a record profit in its last financial year [i.e. FY2011 ending 6/30/11] of US$23.65 billion, the largest ever for an Australian company, driven by soaring prices for iron ore and other key commodities. However, prices for iron ore, U.S. gas and other products fell in the last months of 2011.

"BHP has delivered a solid result in light of difficult market circumstances," said Peter Esho, chief market analyst at City Index.

Earnings for the period were held back by lower production at BHP's majority-owned Escondida copper mine in Chile due to lower ore grades and strikes, as well as flooding in its Queensland coking coal operations, it said. A jump in costs for labor, contractors, equipment and other items [items that are affecting all mining companies but particularly those in Australia] dented underlying earnings by US$1.6 billion , it added.

Iron ore remains BHP's key earnings driver, as it does with other major mining companies including Rio Tinto PLC, which Wednesday said a further US$3.4 billion would be spent expanding the capacity of its operations in the Pilbara as it ramps up output. The commodity remains a key differentiator with Xstrata PLC, which Tuesday announced formally its intention to merge with key shareholder Glencore International PLC to create a US$90 billion mining and commodities trading giant [#msg-71808209].

BHP's market value will continue to eclipse the combined Glencore-Xstrata, but analysts have suggested the Anglo-Swiss rivals may use their advanced scale to chase further acquisitions and to possibly gain a foothold in commodities such as iron ore.

Mr. Kloppers said BHP's focus on a range of large-scale, low-cost commodities it can expand puts it in a different space to Glencore, which is primarily a commodities trader.

"Some people have asked me, 'does this make a difference to you?' and I would say it doesn't make a difference in our strategy, it doesn't make a difference in our philosophy," he said.

BHP has plans to invest US$80 billion in key divisions over five years, and has said it would invest some US$20 billion in its U.S. shale business, which it picked up in two large acquisitions in 2011, together worth US$17 billion. [These were the Jul 2011 acquisition of HK (#msg-65211152) and the Feb 2011 purchase of acreage from CHK (#msg-60162987).] Among other investments, billions are going into Australian iron ore and coking coal, and BHP is considering growing its Olympic dam copper, gold and uranium mine in Australia as well as developing its potash assets in Canada.

Aluminum remains a drag on earnings, swinging to an underlying loss of US$67 million from a year-earlier profit of US$17 million for the half-year, and Mr. Kloppers said the company was no longer directing capital expenditure toward the relatively small division.

Lower prices and rising power costs have hit the aluminum industry hard, prompting several companies to cut production. Mr. Kloppers, asked by an analyst if BHP also would cut capacity, said the company wouldn't run any business that doesn't generate cash and can't sell its product.

BHP late last year launched a review of its diamonds division with an eye on selling it.‹