Mining giant BHP Billiton has delivered Australia’s highest corporate financial result, beating analyst expectations with a full year net profit of $US23.6 billion ($A22.46 billion).
The 85.9 per cent jump in net profit for the 12 months to June 30 was driven by strong commodity prices and comes in above analysts forecasts of about $US22.2 billion.
Booming Chinese steel production singlehandedly pushed BHP Billiton’s underlying earnings before interest and tax (EBIT) higher by $US11.1 billion.
Chief executive Marius Kloppers said both demand and supply trends gave the miner long term confidence in the outlook for commodities.
However, he expects a recovery from sovereign debt woes in the developed world will be “protracted and muted”.
BHP Billiton predicts the strong pace of growth in demand for steelmaking raw materials, particularly in China, will slow in the longer term as underlying growth reverts to a more sustainable level.
“The traded iron ore indices … are somewhat backwardated, from where we stand today, over the next 12 months, reflecting a somewhat easing supply/demand balance but still at very high pricing levels,” Mr Kloppers told a teleconference on Wednesday.
His comments come days after Fortescue Metals Group noted a dip in iron ore demand from China as the nation tightens lending in an effort to beat down inflation.
BHP Billiton remains bullish on the fundamentals for iron ore and coal, particularly the Indian thermal coal market, as supply is expected to remain tight.
“Over a decade now, expansion plans mooted by the (thermal coal) industry collectively have largely not remotely been met,” Mr Kloppers said.
“In fact, the prices rises that we’ve seen over the last ten years is mainly because the supply side has always underperformed.
“Over the foreseeable forward period, we think that lack of being able to finance projects because of financial volatility, bottlenecks in infrastructure and equipment and so on will continue to play out.”
Mr Kloppers warned BHP Billiton expected higher costs for labour and raw materials in the future.
“There will be cost pressures going forward,” he said.
He also said the company’s gearing would rise to 27 per cent, from nine per cent currently, after its $US15.1 billion acquisition of US shale gas play Petrohawk Energy.
While he recently flagged further bolt-on acquisitions to the company’s growing US shale gas portfolio, on Wednesday he said it was “too early to comment”.
The Petrohawk acquisition leaves BHP Billiton with more than $US60 billion remaining from a $US80 billion budget for growth projects over the next five years.
Priorities are its iron ore expansion in Western Australia, metallurgical coal in Queensland’s Bowen Basin, the Escondida copper mine in Chile, the Olympic Dam copper, gold and uranium mine in South Australia and petroleum projects.
“We will tend to `high grade’ that collective set of opportunities and come up with a new number to the market that reflects a rationalisation and synthesis of the combined set of opportunities,” Mr Kloppers said.
He said about $US5 billion per annum would be spent on the Petrohawk assets in coming years.
BHP Billiton’s results included records for operating cashflow ($US30.1 billion), underlying earnings before interest, tax, depreciation and amortisation ($US37.1 billion), and production of four commodities including iron ore.
Revenue jumped 35.9 per cent to $US71.73 billion.
The company said its confidence in the outlook for its core commodity markets and a recent share buyback had enabled the board to declare a 22 per cent increase in final dividend, bringing the full year payout to 101 US cents per share.
Analysts at investment bank UBS said the lack of a share buyback may disappoint some in the market.
UBS said BHP Billiton’s free cashflow of $US18.9 billion was a highlight, up from the Swiss investment bank’s estimate of $US14.8 billion.
