BHP's earnings broadly met our expectations

Overall we are pleased with the diversified miner's first-half results

Mark Taylor 15 February, 2010 | 4:34PM
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BHP Billiton's underlying first-half 2010 earnings declined 7% to $5.7 billion, close to our $5.9 billion forecast. Headline profit increased 134% to $6.1 billion, including a $433 million post-tax reversal of Ravensthorpe nickel impairments. Key drivers versus first half 2009 were lower iron ore, coal, and aluminium prices, all but offset by a combination of higher copper and nickel prices, general volume gains, and cost control, excluding exchange rate and inflation impacts. Prices were more important than volumes by a factor of four. Half year production records were set in iron ore and petroleum.

BHP bettered our petroleum, carbon steel materials, and diamond division forecasts, but under-performed on the aluminum, copper, and nickel front. Copper operating costs were worse than anticipated, exacerbated by the Clark shaft outage at Olympic Dam, responsible for 75% of hoisting capacity at the mine. Re-commissioning and ramp-up at Clark is expected is to finish by the end of June.

Overall we are pleased with the result. Underlying EBIT margin remained strong at 34%. ROIC was 18.6% despite new as-yet-non-productive capital. BHP spent $4.6 billion in the period, and completed the Alumar alumina refinery expansion in Brazil, the WA iron ore Rapid Growth 4 project, and Klipspruit energy coal in South Africa.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BHP Group PLC1,862.40 GBX-0.29Rating

About Author

Mark Taylor  is an equity analyst at Morningstar.

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