Exchange rates, higher input costs key issues for BHP Billiton

TIGHTENING labour markets have begun to have a marked impact on BHP Billiton's aggressive growth plans for Western Australia.

The global mining giant's chief executive, Marius Kloppers, said today that labour and production costs were escalating around the world.

“We have an interesting situation developing in Western Australia on the back of a lot of capital going into the iron ore businesses, but particularly in the oil and gas business,” said Mr Kloppers, when releasing the miner's record half-year profit figures.

“The situation there is not quite as developed as it was pre-GFC, but clearly the labour market has tightened. On the engineering side, we are starting to see some production and cost impacts.”

The Melbourne-based miner also highlighted that exchange rates and higher input costs were also key issues hitting the bottom line.

“Currencies play a very big role for us, given the strengthening of all of our operating regions - of their base currencies - to the US dollar,” Mr Kloppers said.

He added that as prices for commodities rose, so did the cost of products.

“If iron ore and coking coal are sold at very good prices and good returns for us, steel is unfortunately expensive,” he said.

“The only real thing that we can do in that regard is to make the diversified portfolio work for us, where for example in energy, we more than cover our own energy needs through the sales of energy products, and therefore we are internally hedged against these costs.”

Despite the increasing labour and cost issues, the major said it remained positive on the longer-term outlook for the global economy.

“We expect markets to be volatile and event-driven. However, the continuing urbanisation and industrialisation of emerging economies, which is still in its early stages, should provide strong structural support over the long term,” the company said.

“Macroeconomic themes are still a dominant influence on short-term price movements and sentiment. While we expect a slowdown in the growth rate of global commodity demand in calendar year 2011, the economic environment still underpins a robust near-term outlook for our products.”

Emerging markets will be the principle drivers of growth, according to BHP, which it said underpinned its confidence in the longer-term outlook for its core commodities.

“Prices will ultimately be determined by the marginal cost of supply, with the quality of our tier-one assets well positioned to deliver strong margins and investment returns through the cycle,” the miner said.

The mining giant today announced an expanded $US10 billion （$10.03bn） share buyback and reported a record 71.5 per cent jump in half-yearly profit on rising demand and commodity prices.

The world's largest miner also flagged today it would spend $US80bn over the next five years on organic growth plans, with a focus on large ore bodies such as potash in Canada, the Escondida mine in Chile, iron ore in Western Australia and coal projects in Queensland.

Net profit for the six months to December was $US10.52bn, from $US6.14bn a year earlier, while revenue increased 39 per cent to $US34.17bn.

Chief executive Marius Kloppers said: “We are very proud of the results. Despite things like the Gulf of Mexico events and floods around the world, the portfolio has shown that it （works）, it has record margins, almost record cashflow…we are very pleased with what opportunities the market has afforded us and how we have responded to them.”