BHP Billiton, the world’s largest mining company, says 2008 net profit came in line with analysts estimates at $US15.39 billion, a result that was slashed by almost $US1 billion in higher currency costs from the weak US dollar and the stronger Aussie currency.
It was, as expected, an 82% rise in earnings from the company’s oil business that pushed profit higher for the group.
And in the coming year that 86% rise in iron ore prices and the 100%-220% rise in thermal and coking coal export prices will kick in, offsetting the weakening price for oil, copper, nickel, lead and zinc.
The question now for the company is whether the surge in iron ore and coal prices will be enough to offset the downturns and allow the company to maintain profits at 2008’s record levels.
Debt for a company of this size is very low: over $US8 billion and fell 15% in the year while gearing is low at under around 18%, so BHP has ample room to do the huge takeover of Rio Tinto, if allowed.
Net profit for year to June 30 climbed 14.7% to $US15.39 billion or $A17.8 billion (at present exchange rates), from the $US13.416 billion earned in the 2007 year.
The result at June 30 was just over $A16 billion at the then exchange rate of around 95 US cents.The Australian dollar translation doesn’t matter as BHP works exclusively in greenbacks.
Net profit was $US9.4 billion for the six months ended June 30, from $US7.25 billion a year ago,
The result was underpinned by higher production and prices for oil in particular, but also copper, iron ore, coal and manganese.
Underlying profit, or earnings before interest and tax (EBIT), was $US24.28 billion ($A28.09 billion), up 21% and perhaps the best measure of how profitable the company’s mining business has become.
Revenue rose 25.3% in the year to a massive $US59.47 billion ($A68.79 billion). That was an increase of around $US12 billion.
BHP Billiton declared a final dividend of 41 US cents per share, taking the total for the year to 70 US cents, up 48.9%.
The shares ended up 62 cents at $A38.60 yesterday.
BHP Billiton’s petroleum division was the second biggest earner for the group with underlying EBIT up 82.1% to $US5.489 billion ($A6.35 billion) on the back of record oil prices and higher production.
The company’s base metals division was the biggest earner and delivered EBIT growth of 16.2% to $US7.989 billion ($A9.24 billion), after record annual copper output and stronger prices offset weaker prices for nickel, lead, silver and zinc. Gold prices rose.
Underlying earnings from iron ore climbed 69.8% to $US4.63 billion ($A5.36 billion), while BHP Billiton’s manganese business posted a 549.8% increase to $US1.64 billion ($A1.9 billion).
BHP also appeared to support growing fears that the commodities boom might be coming to an end, as it warned of slower short term growth in coming quarters.
BHP warned however that the commodities sector as a whole was facing challenges:
“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, coke and explosives, and shortages of skilled labour.”
Costs were $1.18bn higher than a year ago, it said. The rate of cost increase was 4.3 per cent, excluding non-cash costs of $216m.
Inflationary pressures on input costs across all our businesses had an unfavourable impact on Underlying EBIT of US$532 million. The inflationary pressures were most evident in Australia and South Africa
The following provide a glimpse of the way the company was impacted by the volatile year in commodity and industrial markets, not to mention the surge in the value of the Australian dollar.
Net changes in price increased Underlying EBIT by US$6,693 million (excluding the impact of newly commissioned projects). This was due to higher iron ore, oil, manganese, energy coal and base metals prices.
"Higher price-linked costs reduced Underlying EBIT by US$134 million primarily due to higher royalties and LME-linked aluminium costs.
“This was offset by decreased charges for third party nickel ore and more favourable rates for copper treatment and refining charges (TCRCs).
"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, coke and explosives, and shortages of skilled labour.
“However, our world class ore bodies, strong supplier relationships, internal systems and the capabilities of our people have provided some relief against significant cost pressures.
"Costs for the Group have increased by US$1,183 million. The rate of cost increase on the June 2007 total cost base was 4.3 per cent, excluding non-cash costs of US$216 million.
“In the current tight market conditions, this rate of increase is an outstanding performance.
"Approximately US$575 million of the increase in costs was due to higher fuel and energy and raw materials costs. Severe weather interruptions in Queensland also had an adverse cost impact.
“Other areas that had a cost impact included labour and contractor charges, shipping and freight costs.
“Our continued focus on Business Excellence has delivered US$225 million of cost reduction.
"Exchange rate movements had a negative impact on Underlying EBIT of US$1,133 million. All Australian operations were adversely impacted by the stronger Australian dollar, which reduced Underlying EBIT by US$986 million.
“The appreciation of South American curre
