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BHP profit falls as commodity prices slide

BHP Billiton Ltd. reported a 47% decline in first-half profit amid a downturn in world commodity markets, and said it had further deepened cost-cutting to counter weaker prices as a decadelong resources boom fades.

BHP--the world's biggest mining company by market value--said it recorded a net profit of US$4.27 billion for the six months through December, down from a US$8.11 billion profit a year earlier. The result was higher than the median US$3.59 billion forecast of six analysts polled by The Wall Street Journal.

Prices of two of BHP's most important commodities, iron ore and oil, halved in value last year. Iron ore alone previously accounted for nearly half of the group's earnings.

Demand has been outpaced by a supply surge from projects planned when prices were booming. New production has come at a time when China's economy is slowing and concerns about global growth are rattling confidence.

The company said noncash charges against assets including some oil fields in North Louisiana reduced its earnings by US$938 million.

Still, BHP said it would lift its interim dividend 5% to US$0.62 a share. It also said it had no plan to rebase its dividend lower following a proposed demerger later this year, implying a higher underlying payout ratio is on the horizon, it said.

"While revenues were marginally below expectations, a strong cost performance, in particular in iron ore, has seen BHP come in ahead of expectations" on profit, said Sydney-based RBC Capital Markets analyst Chris Drew.

BHP said it continued to squeeze costs across all its businesses, and had cut unit costs in its iron-ore business in Western Australia by 29% over the past six months. Costs in its coal business in Australia's Queensland state were down 15%, it said.

"We continue to surprise ourselves" in terms of the scale of cost reduction and productivity gains being achieved across the business, Chief Executive Andrew Mackenzie said on a conference call.

The miner expects to record more than US$4 billion in annual productivity gains by mid-2017, it said.

Net debt was lowered by US$847 million over the six-month period, to US$24.9 billion.

The company meanwhile lowered its projections on future capital expenditure. It now forecasts a budget of US$12.6 billion in the current year through June, 15% below earlier estimates. It expects that to fall to US$10.8 billion in the following year.

BHP is overhauling its strategy to focus on producing iron ore, copper, coking coal and petroleum. It intends to spin off assets including nickel pits and aluminum smelters into a separately listed company, named South32, by midyear.

Management separately said they expected sustained growth in China, stronger consumer spending in the U.S. and lower energy prices to underpin an improvement in global economic activity over the remainder of 2015.

marketwatch