BHP Billiton’s profit and net operating cash flows are at the second highest level in the company’s 127 year history.
Despite trying economic conditions the world over BHP Billiton’s financials remain strong, the company announced yesterday at their Annual General Meeting.
“We reported a profit of US$15.4 billion after exceptional items and a net operating cash flow of over US$24 billion. Our balance sheet is strong and we retain a solid A credit rating.” Jac Nasser BHP’s chairman said.
Discussing the current global economy, Nasser added “While there are some signs that the global economy is stabilising, uncertainly and government debt continue to be the most pressing challenges”.
Alluding to the downturn of the European economy and cautious consumers and high unemployment figures in the US Nasser said “a sharp improvement in economic growth remains unlikely”.
However, with China still driving much of the world’s growth, even though it has slowed to more sustainable rates in recent times, the demand for natural resources is still there.
“While we don’t expect the growth levels of the past decade to continue, we do believe that further urbanisation and industrialisation in China will support future growth in demand for commodities.” Nasser said.
The continued rise of the middle class in Asia has prompted a need for energy and mineral resources to support the growth.
“Improvements in living standards in Asia will, over time, change the demand mix for commodities in our portfolio,” he said.
Back home in Australia, BHP is gearing up to make their assets more productive, stable and competitive.
BHP used their AGM to highlight the company’s ability to innovate, and adapt well to change giving the example of exploring for oil in Bass Strait in the 1960s which subsequently led to the growth BHP’s petroleum business, shielding Australia from the oil shocks of the 1970s and today accounting for 20 per cent of the company’s profit.
Copper is another stronghold of BHP’s, developed in the 1980s through the acquisition of Utah International from GE for $2.4 billion, today it makes up 15 per cent of BHP’s profit.
Nasser said the Base Metals business, of which copper is a primary product plays a crucial role in the development of emerging economies and the improvement of living standards.
“Copper is critical to power supply, telecommunications and electronic devices, and is directly linked to economic development. For example, six years ago China consumed about 25 per cent of global copper, today it consumes more than 40 per cent,” he said.
However this year has dealt a few left hooks to BHP Billiton, having to write down their US Fayetteville gas asset by US$1.8 billion after tax was one of them; the other was the three fatalities in the 2012 financial year and one in September this year.
“While we saw a 6 per cent reduction in our total recordable injury frequency to the lowest on record, tragically we had three fatalities in the 2012 financial year and another fatality in September of this year.” Marius Kloppers BHP CEO said.
Looking ahead, BHP said they are well positioned with 19 major low risk projects that are in the execution phase that are expected to deliver a 15 per cent rate of return on investment.
“As our expenditure on these projects reduces over time and our level of flexibility increases, we will continue to allocate future capital to those projects that have the most attractive risk/return metrics. We are committed to our long-held strategy of investing through the cycle.” Kloppers said.
Adding to this, BHP is confident their portfolio is strong enough to weather the economic conditions that lie ahead.
The announcement comes just a week after Australian Mining reported BHP will lift its iron ore capacity targets by nearly a fifth simply by working its existing mines, rain lines and port harder.
Currently the iron ore market is rife with commodity price uncertainty, resulting in a softer iron ore price.
The mining giant has also recently canned plans to build the massive Red Hill and Saraji East coal developments in Queensland, citing a "challenging external environment" for the cutback, as the iron ore market started to shift.
Adding to the list was the move to shelve the $20 billion iron ore harbour project at Port Headland in Western Australia in an effort to shift the company’s focus toward milking more out of its existing assets and increasing its capacity in smaller steps without huge capital outlays.
"Looking forward, things are not as rosy as they were in the past. The imperative to grow as aggressively as we were in the past has diminished slightly," BHP’s iron ore chief Wilson said at the time.
Australian Mining recently reported that coal prices are expected to rise by April 2013, recovering to $US100 ($A96.92) a tonne by the end of next year, GVK Hancock Coal chief development officer Justin Crotty said.
Coal spot prices have suffered over the past six months.
It was also announced this week that China’s economic agency has proposed a plan to scrap annual thermal coal contracts that currently force miners to sell set amounts to power companies at fixed prices.
However when the spot price rose many miners either neglected to provide the agreed upon amounts or simply supplied poor quality coal.
Yet when spot prices fell below the term rates power stations defaulted on their contracts and bought it at the lower rate, hitting many of these miners hard.
According to PricewaterhouseCoopers "coal miners have been hit with falling prices and higher operating costs this year while only achieving steady production volumes on the previous year".
Liberalisation of China’s coal market combined with rising coal prices is likely to see strengthening of the Australian coal market and the stem of job losses and cost cutting that it currently rampant throughout the industry.