$17.7bn bonanza as BHP output soars

WITH production increases accelerating, BHP Billiton yesterday reported yet another record profit and raised its dividend as a sign of confidence that the resources boom is set to continue. The $US15.4 billion ($17.7 billion) net profit, which was up 15 per cent and in line with analysts' expectations, came off the back of BHP's strong annual production report and sets a high bar for smaller rival and $US160 billion takeover target Rio Tinto, which is expected to deliver first-half profit of $US5.1 billion when it reports next week. BHP, like Rio, has been successfully expanding production as prices of iron ore, coking coal and oil have climbed. Both miners are set to deliver hefty profit gains in coming earnings periods. The lift in net profit comes despite many commodities falling back from recent highs and as cost hikes and labour and equipment shortages continue to hamper many resource companies. BHP chief executive Marius Kloppers, who is attempting to convince Rio shareholders they should combine with his company, had no false modesty about his thinking on the quality of BHP's results in the current environment. "I think you will agree that these are spectacular results for any industry," Mr Kloppers told reporters after the announcement. He drew attention to BHP's concentration on high-margin businesses and the fact that from revenue of $US59.47 billion, almost half was retained in the $US28 billion of underlying earnings before interest, tax, depreciation and amortisation. "Prices alone are not enough and I'm pleased with our strong operating performance, which underpins this record result," the chief executive said. Illustrating the importance that expansion is playing, BHP said new operations accounted for $US1.83 billion in earnings before interest and tax, up three-fold from $US586 million in the year before. Price increases remained the biggest factor, though -- accounting for $US6.56 billion of earnings, up from $US6.12 billion a year earlier. BHP, which had to suspend a share buyback in December because of its all-stock bid for Rio Tinto, paid a final dividend of US41c, increasing its full-year dividend to US70c from US47c the year before. "Today's declaration is a strong signal of our confidence in the outlook and our ability to consistently deliver future earnings and cash flow," BHP said. As well as being aided by record production from petroleum, copper and iron ore, BHP was helped by a strong second-half that included record oil prices and the locking in of higher contract prices for oil and coking coal. Analysts said the results, which came in the same as a Bloomberg survey, but below Dow Jones and Thomson Reuters expectations of around $US15.8 billion, presented few surprises. Iron ore, manganese and petroleum were BHP's best performers, with production surging as prices continued to head higher. Petroleum earnings overtook iron ore as the company's second biggest earner, with underlying profit before interest and tax growing 82 per cent to $US5.49 billion. Iron ore earnings slipped to third place with EBIT growing 70 per cent to $US4.63 billion. Base metals remained the miner's biggest profit-maker, boosting EBIT by 16 per cent to $US7.99 billion. Stainless steel materials suffered the biggest drop as nickel prices fell, with EBIT falling 65 per cent to $US1.28 billion. While stressing that BHP's own operations were doing fine, Mr Kloppers said he would not be surprised to see nickel mines start to close as high costs and lower prices started to squeeze miners in the sector. Costs were continuing to hit the whole mining industry, BHP said, noting that its own rose by $US1.18 billion last year. Exchange rates also had a negative impact, cutting underlying EBIT by $US1.13 billion. BHP said it expected short-term world economic growth to slow, with developing economies experiencing further weakness in coming quarters. "Emerging economies should remain relatively strong on the back of continued domestic infrastructure investment and regional trade," BHP said. "While short-term disruptions may occur, we expect their long-term economic growth will remain robust." --Matt Chambers