BHP First-Half Profit Gains 31% on Iron Ore, Lower Costs

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BHP Billiton Ltd. (BHP), the world’s biggest mining company, said first-half profit rose 31 percent as its iron ore earnings gained and costs declined.

Underlying profit rose to $7.8 billion in the six months to Dec. 31, from $5.9 billion a year ago, the Melbourne-based company said today in a statement. That beat a median forecast of $6.9 billion of seven analysts surveyed by Bloomberg.

BHP, which increased its dividend 3.5 percent and forecast more cost savings, expects the global economy to strengthen in fiscal 2014, aided by positive sentiment in the U.S. and Japan. The company joins smaller rival Rio Tinto Group (RIO) in reporting a rise in profit after clamping down on spending to focus on its most profitable operations.

“The iron ore profit is fantastic, that’s what everyone is going to talk about,” Evan Lucas, a Melbourne-based markets strategist at IG Ltd., said by phone. Cost cuts and the dividend were also key themes, he said.

BHP rose 1.2 percent to 1,912 pence at the close of trading yesterday in London, while the benchmark FTSE 100 Index gained 1.1 percent. BHP’s results were released before the Australian share market opened.

“Global economic conditions improved during the December 2013 half year,” the company said according to the statement. “The balance of risk to global growth is skewed to the upside, particularly given the broad based alignment of macroeconomic indicators in the major developed economies.”

Spending Down

The world’s mining companies are reining in spending after a decade-long boom in metal prices waned after producers boosted supply and China’s economy expanded more slowly. BHP is focusing on the highest-returning projects, and plans to spend $16.1 billion during fiscal 2014 on new projects and exploration, down from $22 billion on the previous year.

Annualized cost cutting and efficiency gains total $4.9 billion, and are expected to rise to $5.5 billion by the end of fiscal 2014, BHP said. The boost in productivity has led to a 9 percent increase in the margin of underlying earnings before interest and tax to 38 percent.

Supply of iron ore, BHP’s most profitable unit, will exceed demand growth after producers including BHP added new supply in Australia and Brazil, the company said. Its iron ore unit earnings gained $1.7 billion to $6.5 billion.

“Increasing iron ore supply globally will weigh on the long-run iron ore price,” UBS AG analysts led by Glyn Lawcock said in a note before the earnings. “However, BHP is one of the lowest cost producers and in our view will continue to be a very competitive player in the iron ore space.”

China, the world’s biggest buyer of commodities, imported record amounts of iron ore, copper and crude oil in January even as economic growth in the Asian nation is forecast to moderate this year.