BHP Billiton is on track to produce its biggest ever annual profit after reporting its strongest ever quarterly and annual production report.
Brokers now expect the world's biggest mining group to reveal net earnings of more than $A16 billion when it reports next month. In 2006 it earned a net profit of $13.7 billion which was more than 60 per cent higher than the 2005 figure. Now analysts are looking for a 40% increase.
The company's cashflow will probably rise substantially to exceed $A16 billion or more. It was around $10.5 billion in the 2006 year and just over $US7 billion at the half way mark.
BHP Billiton is due to deliver its preliminary final results on August 22.
BHP Billiton shares rose 50 cents to $38.78.
BHP Billiton shares are up 51% so far this year compared to a 13 per cent rise in the key funds management benchmark, the ASX 200.
2007 first half attributable earnings were 41% ahead at a net $US6.168 billion (about $A6.8 billion at current exchange rates, or around $A7.3 billion at the exchange rates earlier this year) while the underlying Earnings Before Interest and Tax were up 37% to $US9.1 billion (or around $A10 billion at the moment).
What will be of considerable interest is the impact of the 12 per cent rise in the value of the Aussie dollar on the company's revenues and earnings. That currency impact will be the key variable in the final earnings figure.
Because of its multiple currencies, the impact should not be all that significant: BHP has a series of natural hedges.
The prices of most of its major resources have risen (but not in $A terms) in the latest half in particular (and in the 4th quarter).
Copper, lead, oil, iron ore are all higher or near record levels. Nickel prices remain high, even though they came off record highs later in the quarter and financial year.
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The company said in its ASX statement yesterday that it had record annual production in eight of its 19 main commodities.
The production of copper, its major earnings source, rose 17% in the fourth quarter, nickel production was up 15% and iron ore output was up 6%.
For the year, BHP achieved annual production records for natural gas, alumina, aluminum, copper, nickel, iron ore, manganese and coking coal. Annual production of thermal coal, diamonds and manganese alloy also rose. "Petroleum production in line with prior year despite no new major project start-ups," the company said.
"Record annual production achieved at North West Shelf, Worsley, Western Australia Iron Ore, GEMCO, Queensland Coal, Hunter Valley Coal and Illawarra Coal Bed Methane (all Australia), Mad Dog (USA), Zamzama (Pakistan), Alumar (Brazil), Paranam (Suriname), Hillside, Bayside and Samancor (all South Africa), Mozal (Mozambique), Escondida (Chile) and Cerrejon Coal (Colombia).
"Quarterly production records achieved for the Alumar, Yabulu (Australia), Queensland Coal, Cerrejon Coal, New Mexico Coal (USA) and Illawarra Coal Bed Methane operations and for natural gas from Bass Strait (Australia).
"Third party infrastructure constraints on the east coast of Australia will continue to adversely impact our coal operations in the near term," the company added.
The base metals unit was the largest profit contributor in the first half, driven by copper, while petroleum was next, then stainless steel materials, which include nickel and cobalt with iron ore the fourth largest.
BHP said that its petroleum product output rose 10% in the quarter from the previous three months, but was down 1% from a year ago.
BHP's report was also notable forcommentary on the impact of rising material and labour costs and scarcity. Some projects are being reviewed, especially their budgets. These are mostly in the petroleum division and in the deepwater of the Gulf of Mexico, or off the Western Australian north coast.
The most notable change was an $US80 million ($A92 million) rise in the cost of the Stybarrow oil project off the WA north coast.
BHP said earnings will be cut by $US81 million (around $A92 million) for the year, after it had to buy uranium to meet contract needs because of maintenance and lower grade production at its Olympic Dam mine.
More than offsetting this will be a $US108 million ($A120 million) boost to earnings from copper stocks provisionally priced at June 30 2006 but not given a final sale price.
That situation will occur in the current financial year with more than 346,000 tonnes of copper sales provision priced at $US7,152 a tonne. The final price will be settled this year, meaning another boost to copper earnings from carryover sales.