SYDNEY- BHP Billiton should see a 45 percent-plus rise in first-half net profit to around $6.3 billion (3.2 billion pounds) as strong demand for copper, iron ore and other minerals outweigh mounting costs for the world's biggest miner.
The sharp rise in net profit against the year-ago period also could prompt BHP Billiton Ltd./Plc to return more cash to shareholders, possibly via an off-market share buy back, say analysts.
"Capital management will again be a key focus for the result given projected free cash flow of $5.204 billion for the six-month period," UBS mining analyst Glyn Lawcock said in a research note.
Deutsche Bank forecasts an interim dividend of 19.5 cents a share, up 11 percent.
BHP shares have lost about 11 percent since July as metals prices fell from record highs, bucking a 14 percent rise in the broader S&P/ASX 200 index.
The interim result, scheduled for February 7, is expected to show hefty earnings contributions from the base metals and carbon steel materials divisions, led by copper and iron ore respectively.
BHP'S BACKBONE
A similar scenario was played out last week when close rival and fellow London and Sydney-listed Rio Tinto posted a 25 percent gain in half-year profit to $3.59 billion.
"Iron ore and copper are backbones for these companies," said Australia & New Zealand Bank analyst Andrew Harrington.
Analysts polled by Reuters Estimates point to a half-year profit of $6.3 billion, in line with other consensus tallies.
Analysts are tipping BHP's copper operations -- at 1 million tonnes a year the second biggest in the world behind Chile's Codelco -- to add significantly to the bottom line, despite deterioration in the copper price, which will trim earnings by $220 million, and a below-par performance from the big Olympic Dam operation in Australia.
However, copper's contribution should reflect economies of scale, analysts said, offsetting a $1,000-per-tonne drop in the copper price between July and end-December to $6,300.
The giant Escondida mine in Chile achieved a second-quarter production record, while increased mill runs and richer ore grades led to near-record output at the Antamina, Peru, operations.
The carbon steel materials division -- primarily Australian iron ore and steel making coal -- where BHP is spending heavily to boost production -- should contribute around $2.3 billion in earnings before interest and tax, taking a marginally minor backseat to base metals, seen adding $2.8 billion in EBIT.
BALLOONING COSTS
Ballooning costs at big-ticket development projects are likely to reduce the size of any cash return after BHP flagged billions of dollars in budget blow-outs owing to the same commodities boom that is underpinning rising profits.
While first-half and quarterly production records were set in iron ore, copper cathode, manganese ore, aluminium and alumina, BHP has also warned it was feeling the impact of a worldwide lift in mining activity.
The cost of staff and materials needed to build the Ravensthorpe nickel mine in Australia alone has swollen to $2.2 billion, up 64 percent The Alumar alumina refinery expansion in Brazil has gone up 40 percent to $725 million and costs also soared at its Australian its Yabulu nickel project by nearly $100 million to $556 million.
Substantially higher costs are also boosting capital spending in the petroleum division's projects in Australia and the United States. In Australia's iron-rich Pilbara, BHP is seeking government approval to recruit more than 200 or so workers ahead of $1.5 billion in expansion work.
BHP has already bought back 91.5 million of its shares, worth $1.67 billion since August, more than half of an 18-month $3 billion buyback program, which it maintained at the same pace would complete the program some six months early.
"We would expect BHP to increase the size of its current buy back program, perhaps raising it back up to $3 bi
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