Melbourne - BHP Billiton Ltd, the world’s biggest mining company, reported better-than-expected first-half earnings as it set out plans to cut project spending to the lowest since 2010.
Underlying profit was $5.4 billion in the six months to December 31 from $7.8 billion a year earlier, Melbourne-based BHP said on Tuesday in a statement. That beat the $4.9 billion average of five analyst estimates compiled by Bloomberg.
Miners are cutting spending on projects and exploration by $20 billion this year, according to Macquarie Group Ltd, as they scale back growth plans amid waning prices. BHP’s spend in the year to June will fall to $12.6 billion, 15 percent below its initial estimates, while outlays will be trimmed to $10.8 billion in fiscal 2016, the lowest in six years.
“The cut to capital expenditure is a massive mover, and much bigger than the market expected,” Evan Lucas, a market strategist at Melbourne-based IG Ltd, said by phone. “It will be another year of the efficiency drive. The way they can drive their profit forward is by continuing to cut debt and cut costs.”
Project spending had been forecast to fall to $11.5 billion in the 12 months to July 2016, according to the average of 18 analyst forecasts compiled by Bloomberg.
Rival Rio Tinto Group’s capital expenditure will fall to less than $7 billion this year, the lowest since 2010, the London-based producer said February 12. Fortescue Metals Group Ltd said in November it will halve its full-year spending plans.
Lower prices
BHP rose 2.9 percent to $33.06 at the close in Sydney, extending its advance this year to 13 percent.
Iron ore, BHP’s highest earner, has fallen 47 percent in the past year, and traded at $61.20 a metric ton on February 9, the lowest on record dating back to May 2009.
Prices will remain subdued over the medium term, as new seaborne supply outpaces demand, Chief Executive Officer Andrew Mackenzie told investors and analysts today at a Melbourne briefing. Rising availability in China of scrap steel will weigh on iron ore demand in the longer term, he said.
A Bloomberg index of 22 commodities, which includes copper and nickel futures, dropped on January 29 to the lowest since August 2002 amid weaker growth in China, the largest consumer of metals and energy.
Shale spending
BHP, which increased its dividend 5.1 percent, said its plan to hive off about one third of its operations into the planned South32 Ltd demerger would represent an effective additional cash return to holders. Rio, the second-biggest miner, on February 12 announced a $2 billion share buyback, while Glencore PLC is carrying out a $1 billion programme.
The company, the biggest overseas investor in US shale, will trim spending on drilling and development in the unit to $2.2 billion in the year to July 2016, from $4.2 billion in 12 months through June 2014.
While oversupply of crude oil will persist in 2015, the “supply response required to rebalance the market is under way”, BHP said in a presentation. It’s cutting the number of operating rigs in its US onshore operations to 16 from 26 by July.
A process begun in October to sell the Fayetteville shale gas assets in Arkansas has been halted on lower oil prices, with BHP unable to achieve an acceptable price, Mackenzie told reporters on a conference call.
Net debt fell by $837 million to $24.9 billion as of December 31, the producer said in its statement.
Bloomberg