Jan 18, 2012 (Bloomberg) -BHP Billiton Ltd. (BHP), the world's largest mining company, said second-quarter iron ore production rose a better-than-estimated 22 percent to a record, driven by mine, rail and port expansions in Western Australia.

Output from the company's biggest earning unit was 41.1 million metric tons in the three months ended Dec. 31, compared with 33.7 million tons a year earlier, Melbourne-based BHP said today in a statement. That compares with RBC Capital Market's forecast for 35.7 million tons and UBS AG's 38.9 million tons.

BHP, which today raised its Australian full-year iron ore output guidance, and Rio Tinto Group are forging ahead with expansions of their mines to supply steel mills in China, the world's biggest buyers. Metals in London rose to the highest in almost three months amid speculation that China may ease monetary policy, boosting prospects for raw-materials.

"BHP's iron ore numbers were pretty good against expectations," said Chris Weston, an institutional dealer at IG Markets in Melbourne. "China is showing more scope for monetary easing and China will engineer a soft landing for its economy that will benefit the materials stocks such as BHP."

BHP rose 0.8 percent to close at A$37 in Sydney trading, its highest close since Dec. 7. The shares have gained 7.5 percent this year.

Demand Prospects
China's economy expanded at the slowest pace in more than two years, government data yesterday showed, signaling the government may ease lending curbs and increase spending, bolstering demand prospects. A projected steel output rebound in China will be positive for iron ore and coal, Credit Suisse Group AG said in a report this month.

While scheduled maintenance and the wet season in the Pilbara region are expected to affect production of iron ore in Western Australia this half, "full-year production is now forecast to marginally exceed prior guidance of 159 million tons," the company said in the statement.

Petroleum, the company's second-biggest earner in fiscal 2011, climbed 56 percent following the acquisition of almost $17 billion of shale gas assets in the U.S. Spending on petroleum exploration will rise to $1.4 billion this fiscal year, the company said in a separate statement. That's more than double the $557 million the company spent in fiscal 2011.

BHP's review of its diamond business could extend through to the first half of 2012, the company said. In November, BHP set an expected deadline of this month for the review when it announced it may sell some or all of the business. The company's diamond output fell 29 percent in the quarter, it said today.

Copper, Coal
Copper output fell 7 percent, nickel 11 percent and zinc 23 percent, the company said. Coking coal output in Australia rose 9 percent, while energy coal rose 2 percent.

BHP has 17 "buy" and 4 "hold" recommendations, according to data compiled by Bloomberg. The company may post full-year net income of $20.7 billion in fiscal 2012, according to the median of 20 estimates compiled by Bloomberg.

Credit Suisse analyst Paul McTaggart this month rated BHP stock "outperform," saying it has "the greatest earnings diversification and highest margins of the large cap miners and the most secure earnings and cashflow stream should commodity prices weaken."