In its interim report for the six months to December 31, 2007, BHP reported a 2.4% drop in profit attributable to members of the group to $US6.017 billion ($A6.71 billion).
Higher operating costs including energy, shipping, labour and a stronger Australian dollar were all factors; however, chief executive Marius Kloppers was quick to point out in a conference call this morning that cost increases net of non-cash costs rose 1.9% for the half year.
"I believe that these financial results demonstrate our ability to effectively manage our operations in a way that is focused on achieving great outcomes for our customers and for our shareholders," Kloppers said.
BHP pulled in $US25.54 billion in revenue, an increase of 15.5% compared to the 2006 corresponding quarter, while earnings before interest and tax (EBIT) were reported at $9.62 billion, a rise of 5.4%.
Basic earnings per share were $US1.072 per share while dividends jumped 45% to US29c for each share.
The stronger Australian dollar cost BHP $US420 million with Western Australian Iron Ore, Nickel West, Olympic Dam, Worsley Alumina and Queensland Coal operations significantly impacted.
The average Australian dollar rate applied in the interim report was US87c, up from 76c.
Underlying EBIT for metallurgical coal was $US523 million, a decrease of 20.4%, attributable to lower prices (a negative $US217 million). However, this was partially offset by higher sales volumes at both Queensland and Illawarra Coal.
BHP said the increase in sales volume reflected strong demand, supported by expanded capacity at the Hay Point terminal.
Operating costs were higher due to increased demurrage and labour costs which were offset by improved mining conditions at Illawarra Coal.
Profits on the sale of the Elouera mine and the sale of mining leases to Millennium were realised.
Underlying EBIT for energy coal was $US277 million, an increase of 14.5%. Higher export prices resulting from continued strong demand in the Atlantic and Pacific markets and higher production volumes at Hunter Valley Coal (Australia) and Cerréjon Coal (Colombia) had a favourable impact on results.
This was offset by the intended sale of the Optimum asset; the weakening of the US dollar against the South African rand, the Australian dollar and the Colombian peso; and the cessation of underlying EBIT from the Koornfontein mine (South Africa) following its divestment last year and the profit on the divestment of Eyesizwe included in the corresponding period.
Lower earnings from the trading of third party product and increased freight costs also negatively impacted underlying EBIT.
While operating cost increases are a fact of life for most mining companies, a positive global outlook for commodities is a sure thing for BHP with Kloppers reiterating the twin resource boom drivers of China and India.
"Put simply: while we recognise the fluidity in the short-term macro environment, we remain convinced of the long-term growth fundamentals underpinned by the emerging economies," Kloppers said in the conference call.
"As you know we have been very confident about the industrialisation taking place in China and India and the impact that this is having on our business.
"I don't see any change to this long-term outcome and we continue to plan and operate our business on that basis."
Shares in BHP were unchanged at $39.65 this morning.
