Feb 8 (Bloomberg) - BHP Billiton Ltd., the world's biggest mining company, reported a 5.5 percent drop in first- half profit, the first decline since 2009, as rising costs and lower output and prices halved base metals earnings.
Net income was $9.9 billion in the six months ended Dec. 31, from $10.5 billion, a year earlier, the Melbourne-based company said today in a statement. That compares with the $10 billion average estimate of seven analysts surveyed by Bloomberg.
Metal prices in London declined 20 percent in the half on reduced demand in Europe and slowing industrial production in China, the world's largest metals buyer. BHP, which is spending $80 billion over the next five years to boost output of iron ore, copper and coal, remains "cautious" on the market outlook, Chief Executive Officer Marius Kloppers told a conference call.
"Their first half was characterized by a lot of interruptions to production and that has an impact, not only on volumes, but also in terms of cost so you would incur a higher fixed cost," Ray Chantry, a Melbourne-based resources analyst at EL&C Baillieu Stockbroking Ltd. said by phone.
BHP shares fell 0.4 percent to A$37.75 at the close of Sydney trading, compared with a 0.4 gain in the benchmark S&P/ASX 200 Index. It will pay a dividend of 55 cents a share, compared with 46 cents a year earlier. That compares with a projected dividend of 53 cents a share, according to data compiled by Bloomberg.
BHP has 16 "buy" and four "hold" recommendations, according to data compiled by Bloomberg. The company may post full-year net income of $20.6 billion in fiscal 2012, according to the median of 22 estimates compiled by Bloomberg.
"We expect volatility in commodity markets to persist as the European sovereign debt crisis and general weakness in the manufacturing and construction sectors across key markets are expected to weigh on customer behavior and sentiment," BHP said in the statement. "We expect underlying demand growth rates to remain robust, so long as the macroeconomic policy setting of the developing world retains a growth bias."
Lower production at BHP's Australian coal operations because of floods and strikes and lower copper output at Chile's Escondida mine, the world's biggest, cut underlying earnings before interest and tax by $484 million, the company said.
"A temporary reduction in copper production at Escondida, as a result of lower grades and industrial action, was the primary driver of the decline, while industrial action and the remnant effects of wet weather continued to constrain the performance of our leading Queensland coal business," BHP said. Higher costs cut underlying earnings by $1.6 billion, while lower prices reduced earnings in the base metals and stainless steel materials units by $857 million, the company said.
Production at Escondida, managed by BHP, will improve "significantly" beyond fiscal 2012 from accessing higher-grade copper ore in the main pit, BHP said.
BHP's base metal division underlying EBIT fell 54 percent to $1.6 billion, while stainless steel underlying earnings dropped to $1 million. The aluminum division made an underlying loss of $67 million as costs increased. Record iron ore production saw the unit's earnings rise 36 percent to $7.9 billion, the company's biggest profit generator. Petroleum earnings gained 38 percent to $3.9 billion following the purchase of U.S. shale assets.
"Key divisional under-performers were copper and coking coal," Morningstar Inc. analyst Mark Taylor said in an e-mailed note. "The petroleum division produced better-than-expected EBIT. Ironically, this division was where we had greatest concern, given very low U.S. domestic gas prices -- that concern apparently misplaced."