BHP hikes South Flank cost

BHP Billiton has increased the expected cost of its South Flank iron ore project to $US3.6 billion ($A4.6 billion), substantially above the estimated range it provided in June 2017 when initial funding was approved.

As part of its half-year profit report today, the company said the 80 million tonnes per annum project was now expected to cost around $US45 per tonne to develop.

The higher capital cost was attributed to a stronger Australian dollar and updated estimates as the project planning has progressed.

In June last year, BHP said the capital cost for South Flank was expected to be in the range of $US30 to $US40/t.

That was when the company agreed to spend $US184 million preparing for the new mine.

The company added today that, while the capital cost of South Flank has increased, its previously indicated average sustaining capital expenditure of $US4 per tonne (plus or minus 50 per cent in any given year) across its Pilbara operations over the medium term was unchanged.

South Flank is part of BHP's Mining Area C hub, and is the company's preferred option to replace production from the 80mtpa Yandi mine when it reaches the end of its economic life in the early to mid 2020s.

BHP added today that South Flank would increase the average grade in its Pilbara output from 61 per cent to 62 per cent.

In addition, 'lump' ore will increase from 25 per cent to 35 per cent of total production.

Both changes will enable BHP to attract a higher price for its ore. 

The company also confirmed today it had obtained regulatory approval last Friday for an expansion of its iron ore export capacity through Port Hedland to 290mtpa.

It expects to achieve this run rate by June 2019.

Meanwhile, BHP has posted a 37 per cent drop in half-year profit to $US2.02 billion ($A2.55 billion) after accounting for one-off losses of $US2 billion related to a cut to corporate tax rates in the US.

Excluding the significant items, underlying profit for the six months to December 31 rose 25 per cent to $US4.05 billion, but missed analyst expectations for a profit of around $US4.3 billion.

BHP had previously announced the one-off losses, which relate to a reduction in the value of the company's deferred US taxes and non-cash impairment of foreign tax credits.

The mining giant's revenue in the half year rose 16 per cent from a year earlier to $US21.8 billion, driven by stronger iron ore, coal and oil prices.

Chief executive Andrew Mackenzie said higher commodity prices and a solid operating performance had delivered $US49 billion in free cash flow for the period.

"We used this cash to further reduce net debt and increase returns to shareholders through higher dividends," Mr Mackenzie said in a statement.

"We are on track to deliver further productivity gains of $US2 billion by the end of the 2019 financial year as we secure improvements in both operating and capital productivity."

Prices for iron ore peaked at nearly $US95/t in February 2017, and remained between $US60 and $US70 through the year, helped by continued strong demand from Chinese steel mills.

The steel-making ingredient currently trades around $US78/t.

BHP's iron ore production was steady at 117mt during the half-year, while conventional production of oil was 3 per cent lower.

Full-year production and cost guidance remained unchanged for all of its key commodities, except for metallurgical coal, with unit costs at the Queensland coal business set to rise due to production from higher cost pits and rising inflationary pressures.

The company recorded a productivity loss of $US496 million in the half year, but has maintained its previous guidance for $US2 billion in gains over the two years to June 2019.

The company recorded a loss of $US210 million related to the 2015 Samarco dam failure in Brazil during the six-month period.

Ahead of the results announcement, BHP shares on the Australian market fell 13 cents to $31.30.

TAX CHANGES DENT BHP'S HALF-YEAR PROFIT

* Net profit down 37pct to $US2.02b

* Underlying profit up 25pct to $US4.05b

* Revenue up 16 pct to $US21.8b

* Interim dividend up 15 US cents to 55 US cents, fully franked