Posted to the web on: 19 August 2005BHP Billiton tipped to rack...

Posted to the web on: 19 August 2005
BHP Billiton tipped to rack up stellar profit
Charlotte Mathews

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Resources Editor

MARKET expectations of a strong performance from global resources group BHP Billiton are high, with analysts forecasting a near-doubling of annual headline earnings compared with last year, when the group reports results next Wednesday.

The JSE-, Australian- and London-listed group is well placed to service the vast appetite for industrial materials from China, one of the world’s fastest-growing economies. Merrill Lynch’s IQ Profile says the group is among the top-five global producers of iron ore, hard coking and thermal coal, copper in concentrate, aluminium, alumina and nickel.

BHP Billiton said last month that fourth-quarter iron-ore production rose to a record 25,3-million tons, while production of coking coal rose to its second-highest level at 9,6-million tons.

Production of petroleum products rose 9%. Nickel production grew 60% after the WMC Resources takeover in June. Copper output fell in the fourth quarter due to production disruptions. Management warned input costs were under pressure, especially in Australia, and some projects were over budget.

Xstrata, the world’s largest thermal coal exporter, recently reported an 80% increase in first-half profits due to stronger coal, copper and zinc prices, and Kumba Resources posted a 200% increase in headline earnings for the six months to June.

In a recent note to clients, Merrill Lynch said BHP Billiton had delivered impressive organic growth over the past three years, with production and shipment records this year for commodities including iron ore, metallurgical coal, energy coal, aluminium and nickel.

Merrill forecast the group would post earnings of $1,046 a share for the year, compared with $0,564 a year ago.

A local analyst said he expected a 91% increase in BHP Billiton’s headline earnings for the year on the back of strong commodities prices. However, a substantial increase in costs was likely, and this would be an area where the market would be looking for some direction from the group.

Though BHP Billiton cannot control resources prices, it can control volumes and costs. New projects would be of interest, particularly guidance on Olympic Dam, WMC’s copper and uranium mine in south Australia.