BHP Billiton posts a hefty profit fall

BHP Billiton’s underlying profit has fallen by 52 per cent to $US6.4 billion.

This is the lowest profit level the mining giant has posted since 2004, with the company’s statutory profit 86 per cent lower at $US1.9 billion.

BHP’s drive to cut costs will continue, with plans to reduce capital expenditure in the next two financial years, cutting spending from $US11 billion in the 2014/15 year to $US7 billion by 2016/17.

The miner reduced costs faster than expected in all its’ major businesses, with unit cash costs down by 31 per cent at Western Australia Iron Ore, 23 per cent at Queensland Coal, eight per cent at Escondida, while Black Hawk well costs fell 19 per cent.

This contributed to the delivery of $US4.1 billion of productivity gains during the period, two years ahead of BHP’s 2017 target, comprising a reduction in controllable cash costs of $US2.7 billion, productivity-led volume efficiencies of $US1.2 billion and a $US142 million reduction in capitalised exploration expenditure.

Despite tough market conditions, BHP has maintained its progressive dividend policy, increasing it by 2 per cent to 124 US cents per share.

BHP Billiton CEO, Andrew Mackenzie, said the success of the company’s productivity initiatives generated strong cash flow which supported its dividend commitment.

“And while we recorded a sector-leading EBITDA margin of 50 per cent, we will cut costs further and exercise our growing capital flexibility to improve our competitiveness and support our progressive dividend policy through the cycle,” Mackenzie said.

In the short term Mackenzie expects ongoing economic reforms in China to contribute to periods of market volatility.

While BHP said it remains confident in the long-term outlook for commodities demand as emerging economies continue to urbanise and industrialise, it has lowered its forecast of peak Chinese steel demand to between 935 million tonnes and 985 million tonnes in the mid 2020’s.

“This backdrop will favour low-cost producers with economies of scale,” Mackenzie said.

“Importantly, we do not require the same level of investment to grow as in the past. Improved productivity can further stretch the capacity of our existing operations to increase volumes at very low cost.

“For example, in Western Australia Iron Ore we can increase the capacity of our system from 254 million tonnes today to 290 million tonnes over time with minimal investment, while making more than US$20 per tonne margin at today’s prices.”

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