BHP Billiton Ltd. announces first-half profit is up 31% on iron ore due to lower costs

BHP Billiton Ltd, currently considered as the largest mining company in the world, officially announced that its first-half profit increased by more-than-projected 31% as its iron ore earnings rose, while costs dropped amid improving global economic growth.

BHP made a statement today, revealing that its underlying profit increased from 5.9 billion dollars from a year ago to 7.3 billion dollars in the six months from July to December 2013. This result topped the median estimates of 6.9 billion dollars according to analysts forecasts compiled by Bloomberg. The stock of the company rose to a one-year high in Sydney.

The company said in its statement, which was cited by Bloomberg: “Global economic conditions improved during the December 2013 half year. The balance of risk to global growth is skewed to the upside, particularly given the broad based alignment of macroeconomic indicators in the major developed economies.”

The dividend of BHP was boosted 3.5%. The company also predicted more cost savings and said that it expected the global economy to strengthen during the fiscal 2014 thanks to the positive attitude of the U.S. and Japan.

Peter Esho, Chief Market Analyst of Invast Financial Services Pty., said in an interview for Bloomberg: “They’ve delivered the earnings number, they’ve cut their capital expenditure and they are now getting very attractive returns on capital of 22 percent. That’s what adds shareholder value, and that’s what the large, influential fund managers wanted to see.”

The mining companies all over the world proved themselves leaders in spending after an advance in metal prices that lasted for more than ten years. Now BHP is said to become more focused on the highest-returning projects. The company also considers spending about 16 billion dollars on new projects and exploration in the fiscal 2014. The sum is considerably lower than the 22 billion dollars spent during the fiscal 2013.

Currently, iron ore is the most important raw material used by BHP, followed by petroleum. Iron ore price increased by 15% during the second half of 2013 as China, the biggest buyer in the world, boosted stockpiles to their highest in more than a year. BHP announced that demand growth will be surpassed by supply of iron ore, which is the most profitable unit of the company, after manufacturers added new supply in Australia and Brazil. The iron ore unit earnings of the company are reported to have gained 1.7 billion dollars to 6.5 billion dollars.

Andrew Mackenzie, the Chief Executive Officer of BHP Billiton Ltd., said on a call with reporters, which was cited by Bloomberg: “We still see some issues arising from new supply coming on. As we look further forward by a quarter or two, our conclusion is that there is more supply coming into the iron ore market than there is demand growth in places like China and elsewhere.”

BHP Billiton Ltd. Rose by 2.29% on Tuesday to settle at a one-year high of AUD 38.89 in Sydney, marking a market capitalization of almost 200 billion Australian dollars.