BHP Billiton – the world’s biggest mining company has reported its biggest ever half yearly profit of $10.5 billion (£6.5 billion) in the six months to the end of December 2010, thanks to surging demand in emerging markets and better pricing of commodities worldwide.
Net profit has jumped by 72% over the same period in 2009. Buoyed by strong results, the company announced that it will return $10 billion to shareholders through a buy back programme and will also spend a staggering $80 billion on new projects worldwide.
Although the world economy is slowly reviving, BHP sees sales slowing down in 2011, said chief executive Marius Kloppers.
“While we expect a slowdown in the growth rate of global commodity demand in calendar year 2011, the economic environment still underpins a robust near-term outlook for our products”, said Mr. Kloppers.
Mining and exploration companies had mixed luck while identifying and exploiting new sites. However, BHP said it plans to spend $80 billion over the next five years to develop new projects. It plans to spend the money in Chile, Canada and Australia.
Demand-supply mismatch is the reason why commodity prices have skyrocketed, analysts say. However the company’s steep capital expenditure has surprised many analysts.
Mes Bruce of Perpetual Investments said: “The biggest surprise is the commitment to spend $80bn over the next five years.
“We think that this demonstrates the challenges that the industry is having satisfying rising demand, while replacing declining production from mature operations”, he added.
BHP Billiton’s recent attempt to acquire Canada’s Potash Corp ran into rough weathers after the Canadian government resisted the bid and BHP was forced to quit.
BHP is sitting over a large cash pile and in the absence of any possible takeover target decided to return the money to shareholders.
A share buyback program reduces the equity base of a company raising the earnings per share (EPS) of future profits.