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BHP Billiton plc Reports Surging Profit

BHP Billiton

The share price of BHP Billiton (LSE: BLT) (NYSE: BBL.US) increased 2% to 1948p this morning after the miner reported soaring profits for the six months ended 31 December, bolstered by improvements in its iron ore, coal and petroleum businesses.

Underlying profit increased from $5.9bn for the 2012 half-year to $7.8bn, which beat analyst expectations of $6.9bn. This was a result of a substantial improvement in productivity and volume growth.

Across BHP’s portfolio, there was a 10% increase in production including a record 108m tonnes produced at its Western Australia iron ore mines.

Iron ore is BHP’s most lucrative commodity and production increased by 19% for the half-year. Full-year production guidance remains unchanged at 192m tonnes and the group is on track to meet this target.

The miner achieved annualised cost savings of $4.9bn having cut capital spending and trimmed debt. Strong free cash flow is projected, and net debt of $27bn is expected to approach $25bn by the end of the 2014 financial year.

The chief executive, Andrew Mackenzie, commented:

“The commitment we made 18 months ago to deliver more tonnes and more barrels from our existing infrastructure at a lower unit cost is delivering tangible results.”

“The Group’s opportunity rich portfolio remains a key point of differentiation. By maintaining strict financial discipline and increasing internal competition for capital we intend to further differentiate ourselves by creating a more capital efficient organisation.”

“With strong free cash flow, selective investment and continued simplification, we are well placed to extend our strong track record of capital management.”

In today’s results BHP Billiton reported earnings per share of 182p that would support a dividend of 70p. After this morning’s price adjustment the shares may therefore trade on a P/E of 11 and offer a possible income of 3.6%

Of course, the decision to ‘buy’ — based on those ratings, today’s results, and the wider prospects of the mining sector — is solely your own decision.

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> Mark does not own shares in BHP Billiton.