BHP heading for 76pc jump in half-year profit

MELBOURNE - BHP Billiton, the world's biggest mining company, is likely to post a 76 per cent jump in second-half profit today as rising demand in China helps propel prices of copper, coal, iron ore and oil to records.

Net income is expected to rise to US$3.6 billion ($5.15 billion) in the six months ended June 30, from US$2.04 billion a year earlier, according to a median estimate of eight analysts.

Chief executive Charles "Chip" Goodyear, 47, is spending US$10.2 billion ($14.8 billion) expanding mines and paid US$7 billion in June for WMC Resources to tap soaring Chinese demand. BHP Billiton had record production of nine of its products last year.

"They've got very strong commodity prices on crude, coking coal and iron ore," said Alfred Wong, who helps manage $12 billion at UOB Asset Management in Singapore, including BHP shares.

"The commodity market is finely balanced, if not in deficit, and 2006 will still be a deficit year for many commodities. It will be a good few years for BHP."

Shares of BHP Billiton in Australia have gained 37 per cent this year - compared with an 11 per cent gain by Australia's benchmark index.

The first-half jump in profit may outpace the 34 per cent increase in earnings at rival Rio Tinto Group, and beat the 17 per cent decline at Anglo American.

Unlike its two biggest mining rivals, BHP Billiton produces oil.

Full-year profit may have risen to US$6.4 billion, almost double the previous year's US$3.38 billion, according to the Bloomberg survey. That would also be a record for an Australian company.

"BHP Billiton is getting production increases in areas like bulk commodities and oil, where demand is high and prices are strong," said Rob Clifford, an analyst at ABN Amro Holding.

"Their capital expenditure allocation has been very good in the last few years."

Prices of iron ore and coking coal, both so-called bulk commodities used to make steel, rose 71.5 per cent and 120 per cent from April 1.

Nickel prices averaged 15 per cent higher in the first six months from a year ago, while copper prices rose 18 per cent and reached a record on August 16.

BHP Billiton's sales to China may have risen as much as 36 per cent to US$3.3 billion for year ended June 30, from US$2.43 billion, the company said in June. It sold less than US$400 million of products into China in fiscal 2002, Goodyear said in May.

"BHP is looking to grow its business to meet what it sees as continuing demand in Asia, and in particular in China," said Glyn Lawcock, an analyst at UBS AG in Sydney. "Over the next six to 12 months, BHP's operations will be running flat out."

Goodyear is spending US$10.2 billion through 2008 on new mines and oil fields. At least US$1.4 billion is being spent on a new nickel mine in Western Australia and expanding the Yabulu nickel refinery. About US$1.7 billion is being spent on copper mines and processing plants in Chile.

BHP Billiton has said that soaring labour costs and steel prices may increase the cost of some of those projects.

"The big concern is whether there's going to be increased capital costs and delays in production," said Gavin Van der Wath of RBC Capital Markets in Sydney.

- BLOOMBERG