16/02/2011 - 15:33

Iron ore fuels record BHP profit

16/02/2011 - 15:33

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BHP Billiton is budgeting to spend at least $US80 billion to expand its business over the next five years, after its booming WA iron ore business fuelled the biggest interim net profit ever delivered in Australia.

BHP Billiton is budgeting to spend at least $US80 billion to expand its business over the next five years, after its booming WA iron ore business fuelled the biggest interim net profit ever delivered in Australia.

BHP Billiton on Wednesday posted a colossal $US10.5 billion first half net profit.

It's a result only the company itself and rival mining giant Rio Tinto had come close to achieving in the nation's corporate history, CommSec chief equities economist Craig James said.

The record result, driven by high commodity prices, comes less than a week after Rio Tinto reported a record full year net profit of $US14.3 billion.

BHP Billiton chief executive Marius Kloppers said the miner would spend more than $US80 billion building up the business in the next five years, including its iron ore and coal businesses in Australia.

He said the market wasn't fully appreciative of the quality and depth of its growth pipeline.

"Not only is that a very substantial program, but you can also see we have a good spread of projects in conception, pre-feasibility and feasibility stages, which means there is robust volume growth as these projects move forward," Mr Kloppers told a teleconference on Wednesday.

He indicated the miner had not lowered its merger and acquisition horizons after its recent failed bid for Canada's Potash Corporation, and remained fixed on big, long life assets.

Both BHP Billiton and Rio Tinto have emphasised their focus on organic growth.

However, Rio Tinto is targeting achievable small to medium-sized acquisitions such as its $US3.9 billion tilt at Africa-focused coal miner Riversdale Mining.

"Among the world's ore bodies, we only want to operate the large ones," Mr Kloppers said on Wednesday.

"These are small in number and difficult to progress.

"We are absolutely not in the place of making higher leverage second tier or below asset acquisitions, because we don't feel we add value.

"Hence, as one looks at a buy versus build equation, the clear opportunity for us is to continue to invest money in our organic portfolio."

Mr Kloppers said BHP Billiton's growth strategy - to expand massive ore bodies over time - did not mean it ruled out acquisitions of assets "that can be aggregated into tier one positions".

He said BHP Billiton's key growth projects included maximising capacity at the Port Hedland outer harbour in Western Australia, bringing its Jansen potash project in Canada into production by 2015 and reaching a final investment decision on expanding the Olympic Dam uranium and copper mine in South Australia by next year.

Other growth projects were a feasibility study to build a new concentrator at the Escondida copper mine in Chile, expanding its Samarco iron ore operations in Brazil and the expansion of the Hay Point coal terminal in Queensland.

MF Global analyst Warren Edney said he expected BHP Billiton would end up spending more than $US80 billion growing the business in the next five years.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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