[miningmx.com] — BHP Billiton delivered a record second-half profit driven largely by soaring prices for iron ore, allowing it to award investors a big hike in dividends on top of its hefty expansion plans.
The world’s biggest miner, however, sounded a warning over rising costs and disappointed some investors who had hoped it would undertake another small buyback after achieving Australia’s biggest ever annual profit of $21.7bn.
“It’s a very solid and commendable result but it’s not enough in terms of the surprise factor to catapult people to go and buy the stock on the back of it,” said Tim Schroeders, portfolio manager at Pengana Capital.
Investors had been divided over whether to expect another buyback following BHP’s recent $12.1bn bid for US shale gas producer Petrohawk Energy, its biggest successful deal since BHP took over Billiton Plc.
“We weren’t expecting any capital management initiatives just now given the Petrohawk acquisition but with their cash generation, low debt level and commodities boom, we will focus on it in the next 12 months,” said Rohan Walsh, investment manager at Karara Capital.
The miner’s shares edged up 0.4% to 1,898 pence in early trade in London, after ending flat in Australian trade.
BHP, the last of the major miners to report results, was cautious on the near-term outlook for commodity prices, expecting weak growth in Europe and the United States.
But it continued to see a strong outlook longer term, underpinned by rapidly growing developing countries.
“This coupled with shortages of labour and equipment on the supply side, which continue to constrain the industry’s ability to bring on new production, give us a favourable outlook,” Chief Executive Marius Kloppers told reporters.
COST PRESSURES
BHP joined its peers in warning about escalating costs, saying rising costs for labour and equipment cut earnings by $1.2bn in the year to June.
“In the current environment, tight labour and raw material markets are presenting a challenge for all operators, and BHP Billiton is not immune from that trend,” the company said.
It raised its dividend by 22%, which it said reflected its “confidence in the long term outlook for our core commodity markets”, after completing a $10bn share buyback earlier than planned.
Kloppers said the company would review its plan to spend $80bn over five years on development projects following its takeover of Petrohawk, as it expects to allocate $5bn a year on developing Petrohawk’s shale gas resources.
Soaring prices for iron ore, copper and oil boosted attributable profit before exceptional items to $10.98bn for the six months to June from $6.77bn a year ago, missing an average forecast of $11.7bn.
Earnings from iron ore, its biggest division, jumped 122% to $13.3bn, while earnings for base metals soared 47% and petroleum earnings grew 38%.
It said inflation and the falling US dollar cut underlying earnings by $3.2bn, beyond the impact of rising labour and equipment costs.
BHP’s shares have fallen 16% so far this year on worries about global growth, underperforming the broader market’s 14% drop.
