BHP Billiton did very well out of iron ore in the year to June, with higher volumes and a switch to market-based pricing helping drive pre-tax profit up by 68 per cent to $19.6bn (£12.7bn). But the boot could be on the other foot going forward. "With global steel production running ahead of real demand in the quarter ended June 2010, we expect output to soften from the record highs achieved in April this year," it said. That could affect prices for coking coal - another key BHP product - as well as ore.
The miner remains typically cautious on the short-term outlook for the global economy and commodities. Economies such as Brazil and India have returned to full output but they and China have shifted their focus from growth and stimulus towards controlling inflation. In developed economies, the full effects of spending cuts have yet to flow through to demand.
Despite the mixed near-term picture, the miner completed five major growth projects (oil and gas, iron ore, alumina and energy coal), approved another two in base metals and energy coal and made pre-commitments of $2.24bn for another four projects in iron ore, metallurgical coal and potash.
BHP managed costs well across the group, although a weaker US dollar against its producer currencies - an issue facing all the diversified majors - hit profits by $2.2bn. Operating cash flow remained strong at $17.9bn, which reduced net debt to $3.3bn and gearing to only 7 per cent.
The cash pile and balance sheet support a 6.1 per cent increase in full-year dividend to 87¢, but could be much more crucial to the group's $39bn ($130 per share) cash offer to acquire Potash Corporation of Saskatchewan. Since the offer, PotashCorp's shares have traded at around $150, suggesting BHP will need to raise its offer to gain control.
