BHP Billiton makes record profits – but sounds a warning

The world's largest mining company, BHP Billiton, has issued a warning on the state of the world economy despite reporting record-breaking profits of more than $31bn (£19bn).

The Melbourne-based group cited booming business in developing economies – including "another strong year of growth" in Chinese steel production – as a key factor behind its 60% surge in pre-tax profits and 36% rise in revenues.

However, chief executive Marius Kloppers struck a gloomy note about the world economic situation, saying: The world has had a growth decrease, it's got poor demographics and it's got high debt. That depresses growth – you can't just make debt disappear.

"So far all we've done is shovelled it from the balance sheet of the consumer to the balance sheet of the government. No debt has actually been paid off. There is a lot more to come and this is not a one-year, two-year thing – this is a decade."

The company warned: "Global imbalances and high levels of sovereign debt continue to create uncertainty and a protracted recovery remains our base case assumption for the developed world … Across the important growth economies of China and India, recent economic data suggests monetary policy is having the intended effect [of slowing growth]."

Income from iron ore, BHP's biggest division, rose a better than expected 122% to $13.3bn, spurred by strong demand from Chinese steel producers. Iron ore is currently trading at $178 a tonne and has more than tripled in cost since 2008.

The story was the same in other divisions. Earnings from base metals such as copper, which has risen in price by almost 30% in 12 months, soared 47%. Profits from oil grew 38%, thanks to rising prices.

However, BHP repeated concerns expressed by rivals that materials and operating costs were rising rapidly in the mining industry and making it more difficult to open up new supply. Kloppers used an example to illustrate the problem: "You want [giant truck] tyres for three years out, 57-inch tyres, and you think you have a project for which you haven't ordered them? Then they are not to be had at any price."

Its biggest hit came from the weakness of the US dollar against the Australian dollar, which, together with inflation, took $3.2bn bite out of full-year operating profit, but BHP insisted it was "congenitally" opposed to currency hedging.

The company is the last of the big miners to report its results, and they were generally well received by market watchers. In a note to clients, Investec mining analyst Mark Heyhoe wrote: "Unlike peers, BHP was marginally ahead of consensus figures due to strong iron ore and petroleum results … Although we expect prices and earnings will be volatile, BHP looks strongly positioned for 2012 with gearing below peers at 9% and generating $30.1bn of operational cash flow."

Shares in the group, which have risen by about a third since the onset of the financial crisis, edged up 42.5p to £19.32, as the company also sought to please investors with a 22% rise in dividend, having completed a $10bn share buyback ahead of expectations. "We see buybacks really as the deployment of surplus capital after other priorities have been completed," Kloppers said.

Despite admitting to $314m of costs associated with its aborted bid for Canada's Potash Corp at the end of last year, Kloppers hinted that the company may pay out more in investment banking and legal fees as it seeks out deals to expand its shale gas interests outside the US.

"From a medium and long-term strategy, our view is that shale gas will play into the world's total energy mix and it would be our anticipation that over time we hope to participate in other areas of the world as well."

BHP moved into US shale gas this year, making its largest ever acquisition by snapping up independent prospector Petrohawk for $12.1bn as well as paying $4.75bn for Chesapeake Energy Corp's Fayetteville shale assets.

Having become an important source of natural gas in America over the past decade, interest in shale has now spread to Canada, Europe, Asia, and Australia. It has been promoted as a source of energy that emits fewer greenhouse gases than other fossil fuels, though those claims are controversial and often disputed.

Environmentalists have also raised concerns that the process used to extract shale gas – called hydraulic fracturing, or "fracking" – can contaminate drinking water. America's Environmental Protection Agency is examining those claims.

In total, BHP's pre-tax profits for the year ending June 2011 rose from $19.6bn to $31.3bn, on the back of a rise in revenues from $52.8bn to $71.7bn. Soaring prices for iron ore, copper and oil boosted attributable profit before exceptional items to $10.98bn for the six months to June, up from $6.77bn a year ago, but missing an average forecast of $11.7bn according to Thomson Reuters.

Glencore move

Glencore has launched a A$268m (£170m) cash bid to acquire the 27% of an Australia-based nickel miner it does not own, in an opportunistic move taking advantage of recent plunges in natural resources shares.

The commodities trader is offering A$0.87 for the rump of Sydney-listed Minara Resources, a 36% premium on Tuesday's closing price but still a 15% discount on the shares' 2011 high.

The acquisition is the second since Glencore's initial public offering in May, which catapulted the Swiss group straight into the FTSE 100. However its shares, which were widely predicting to become Glencore's acquisition currency after a six-month lock up period, have since lost 30%.