Iron price help mining giant to record profits

BHP Billiton nevertheless joined its peers in sounding a warning over escalating costs and disappointed some investors by deciding against a share buyback after the result, which also produced Australia’s largest ever corporate annual profit of $21.7bn – £13.1bn – and $30.1bn of operating cashflow.

The company said it prioritised operational growth, maintaining balance sheet strength, growing its dividend and only then did the focus shift to returning surplus cash through buybacks.

BHP, the last of the major miners to report results, was cautious on the near-term outlook for commodity prices, expecting weak growth in Europe and the United States.

But it continued to see a strong outlook longer term, underpinned by rapidly growing developing countries.

“This coupled with shortages of labour and equipment on the supply side, which continue to constrain the industry’s ability to bring on new production, gives us a favourable outlook,” said Marius Kloppers, chief executive.

BHP echoed rival miners including Rio Tinto and Anglo American, which have warned on escalating operating and capital costs. BHP said rising costs for labour and equipment cut earnings by $1.2bn in the year to June.

Its biggest hit came from the weakness of the US dollar against producer country currencies and inflation, which took a $3.2bn bite out of operating profit through the year, but BHP said it had no plan to begin hedging currency movements.

“The prices rises that we have seen on the revenue side lag between six and 12 months, and we were going to see them on the cost side in due course,” Mr Kloppers said.

The company raised its dividend by 22 per cent, which it said reflected its “confidence in the long term outlook for our core commodity markets,” after completing a $10bn share buyback in April, earlier than planned.

Mr Kloppers said the company would review its plan to spend $80bn over five years on development projects following its takeover of Petrohawk, as it expects to allocate $5bn a year on developing Petrohawk’s shale gas resources.

BHP is dual-listed on the London and Australian stock exchanges. It is headquartered in Melbourne.