Melbourne: BHP Billiton Ltd/Plc, the world’s biggest miner, braced for a very uncertain future as it reported a 2.2% increase in first-half profits, aided by a last burst of Chinese demand growth.
BHP’s earnings are set to fall this year for the first time in a decade as oil and metals prices have slumped and demand for metals has dwindled as manufacturers slash production worldwide.
In face of the downturn, the company already flagged it would shed 6% of its workforce and shut its Ravensthorpe nickel operation, with a $3.3 billion writedown on the project. It has warned it may have to close more mines.
“Momentum and risk in our view is still probably to the downside,” CEO Marius Kloppers told analysts. “The turning point for any eventual recovery continues to be pushed out.”
Analysts said BHP’s underlying earnings were largely in line with expectations, but net profit appeared to have been hurt by a bigger tax cost than expected. They tipped the sharp slide in the December quarter was likely to continue in the second half.
“The momentum of the commodities market is negative and BHP still sees a very tough and volatile market in the next six months. Clearly they won’t be able to repeat the types of numbers seen in the first half,” said Tim Schroeders, a portfolio manager at Pengana Capital.
Despite the tough times, BHP still has a strong balance sheet, using its strong cash flows to cut net debt to $4.2 billion - about a tenth of the net debt weighing down rival Rio Tinto.
Rivals like Rio and Oz Minerals are desperate to sell assets to pay down debt.
Asked if BHP might resume a share buyback, which was put on hold when the miner launched a huge hostile bid for Rio Tinto in 2007, Kloppers said now was not the time, given the uncertain outlook.
Reflecting the cloudy outlook, BHP matched Rio in reneging on a policy of steady dividend increases, holding its payout steady against the June half. However, that was up 41% on a year ago.