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BHP results underline financial strength

August 25, 2010

“BHP Billiton, the Anglo-Australian miner that last week launched a $39bn hostile bid for Canada’s PotashCorp, has reported its second best full-year net profit on record fuelled by strong growth in earnings from its petroleum and base metals operations.

The Melbourne-based miner, the world’s biggest, underlined its financial clout when it said on Wednesday that it generated $17.9bn in cash flow from its operations, with net debt falling to $3.3bn and a gearing ratio of 6 per cent.

Profits on a pre-tax basis rose from $11.6bn to $19.6bn in the year ended June on revenues that increased from $50.2bn to $52.8bn. After-tax profits grew from $5.9bn to $12.7bn, falling short of forecasts of around $13.3bn.”

Source: Financial Times, August 24, 2010

Observations:

  • BHP has managed to increase output by $2.9bln while improving operating performance by $0.3bln. The improvement vs. 2009 is mainly explained by higher copper, base metals & petroleum margins. Revenues and profits do not yet come close to pre-downturn levels, mainly because of lower iron ore prices in the second half of 2009.
  • The published project pipeline shows that the Navajo St. Energy Coal project has been dropped in the feasibility stage in the past year.

Implications:

  • Main take-away from the executives’ Outlook presentation is the expected slowing of government-driven growth in China and Europe. The board appears to be trying to lower expectations for next year’s results.
  • The net gearing of the company of 6% is stressed to demonstrate the ability to increase debt in order to purchase PotashCorp. This figure is the most positive leverage-related ratio from the balance sheet. The regular debt-to-equity ratio (debt/equity) is 80% and will exceed 100% after the acquisition.

©2010 | Wilfred Visser | thebusinessofmining.com

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  1. August 30, 2010 at 9:42 am
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