Mining giant BHP Billiton on Wednesday reported a 15% decline in underlying earnings before interest and tax for the financial year ended June, as well as a 21% decline in attributable profit.
Underlying earnings for the 12 months reached $27.2-billion, compared with the $31.9-billion, while profit from operations reached $23.7-billion, compared with the $31.8-billion in the previous financial year. Exceptional items totalling $1.7-billion contributed to a 35% decline in attributable profit to $15.4-billion.
The miner said the decline in profits was attributable to weakness in the commodity markets, as well as industry-wide cost pressures.
“The group has been quick to respond to the change in the operating environment and has acted decisively by closing energy intensive silicomanganese alloy production capacity in South Africa and by temporarily closing capacity at Temco, in Australia.”
In addition, BHP noted that metallurgical coal production at Norwich Park, also in Australia, was suspended following a review of the mine’s profitability. The viability of other high-cost operations was also being assessed and additional measures were being implemented that would substantially reduce operating costs and non-essential expenditure across the business.
Meanwhile, the attributable profit for the 12 months to June was also impacted by a number of exceptional items, including a $1.8-billion impairment from the Fayetteville dry gas assets, a $355-million impairment from the Nickel West operations, in Australia, and a $342-million charge for the suspension of early closure of operations and the change in status of specific projects, including the Olympic Dam project.
Other exceptional items included the settlement of insurance claims at Queensland Coal, while a $637-million non-cash income tax credit was recognised following the passing of Australia’s mineral resource rent tax and petroleum resource rent tax in March this year.
During the financial year, BHP reported annual record production records at ten of its operations, with revenue for the group increasing by 0.7% to $72.2-billion during the 12 months to June.
Looking ahead, the miner noted the while concerns around the stability of the Eurozone and the decline in economic activity that accompanied the slow-down of Chinese growth had led to significant market volatility in the 2012 financial year, the company remained positive on the long-term view.
“Our positive longer-term view is unchanged as urbanization and industrialisation across the developing world is expected to remain the primary driver of global economic growth. While the rate of expansion within China has adjusted to a more sustainable level as its economy has matured, economic growth in this decade is expected to rise substantially in absolute terms, given the higher starting base,” the miner said.
As far as commodity prices were concerned, the mining major said that it expected volatility to persist as temporary weakness in the manufacturing and construction sectors were expected to weigh on market sentiment.
However, in the medium term, the miner expected supportive economic policy and a broad growth bias, particularly in China, to lead to measured improvements in the external environment, beginning in the first half of the 2013 financial year.
“For specific commodities, the industry will find it difficult to develop new supply quickly enough to satisfy the expected increase in demand. This is particularly the case for industries where barriers to entry are high or where the global resource endowment is in decline.
“We believe that our strategy of being a low-cost, upstream, diversified natural resource company will provide more opportunities to create long-term shareholder value as commodity demand patterns evolve with economic development.”
Edited by: Creamer Media Reporter