BHP profit expected to fall as boom tapers

19 Aug 2012, 11:01 am   -   Source: AAP

BHP Billiton's run of record profits is expected to come to an end when it reports this week a smaller profit as demand for minerals from China cools.

BHP Billiton will this week post its first profit fall in three years in what some will see as a symbolic end to the mining boom.

A year ago the biggest company on the domestic share market reported an Australian corporate record $US22 billion ($A21.01 billion) full year operating profit.

This time around the market consensus is for BHP to report a $US16.9 billion ($A16.14 billion) net profit when it reports on Wednesday, which will end its run of ever-increasing record profits over the past three years.

Chief executive Marius Kloppers has been criticised over the wisdom of the big miner's bet on US shale under his watch, after it wrote down those assets and its Australian nickel mines by $US3.3 billion ($A3.15 billion) last month.

Mr Kloppers and his petroleum head Mike Yeager have moved to head off investor anger by foregoing salary bonuses this year.

Last year's bonuses were worth $US7.4 million.

BHP's share price on Friday was $33.00, compared with $37.50 a year ago and highs around $47.76 in April 2011.

Last year commodity prices were booming, but now they are falling as growth slows in China.

Iron ore is BHP's biggest cash cow and generates roughly half of its earnings but its price has dropped by a third in the past year to below $US120 a tonne.

Meanwhile Mr Kloppers and his mining peers complain that the cost of doing business in Australia is rising, amid speculation it will cut jobs at its Queensland coal mines and Brisbane office.

Morningstar resources analyst Mark Taylor says profits in the mining sector have peaked.

"I think we have pretty much seen the pinnacle, they will plateau for a couple of years as rising volumes are offset by softening prices", he told AAP.

Still, a net profit of nearly $US17 billion is hardly anaemic.

Mr Taylor is predicting above $US19.5 billion ($A18.62 billion), believing the petroleum and copper divisions will do better than expected.

Shareholders calling out for better returns such as Djerriwarrh Investments boss Ross Barker might also be rewarded.

"I have heard that's (capital returns to shareholders) something to look out for", Mr Taylor said.

"The growth in their dividend over the last decade has actually been huge, bigger than just about any other company (due to record profits).

"I'm not on the side that says they need to pay out more, just for the sake of it, but I do think money is better paid out while capital costs are so high."

It appears unlikely BHP will commit to developing two of its mega projects soon: the $30 billion Olympic Dam mine and $19 billion Port Hedland harbour expansion.

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