BHP poised for solid profit

BHP Billiton Ltd is expected to report first half profit of up to $10 billion and
will likely defer a large share buyback so it can snap up distressed assets,
analysts say.
Analysts have recently downgraded their forecasts for BHP Billiton's reported profit
to a range of $US4.85 billion ($A7.67 billion) to $US6.42 billion ($A10.16 billion)
for first half of the 2009 financial year.
The world's biggest mining company will release its results on Wednesday.
The downgrades came on the back of impairment charges for the company's nickel
division, production curtailments and lower base metal and oil prices.
They also followed a hit from copper provisional pricing unveiled in BHP Billiton's
second quarter production report last month.
Commodity prices have sunk as demand slows amid the global economic downturn, with
many producers forced to writedown the value of assets while cutting output and jobs
to remain competitive.
BHP Billiton reported net profit of $US6.017 billion ($A9.52 billion) in first half
2007/08.
Analysts agree that BHP Billiton is in a strong position to weather the economic storm.
It has a strong balance sheet, minimal debt and a cost of production on average
towards the lower end of the spectrum.
BHP Billiton is also considered to be in the ideal position with its strong balance
sheet to acquire assets at low prices, with limited competitors.
"We do not expect a large buyback to be announced at the upcoming result, and
instead expect the powder to be kept dry for distressed asset sale opportunities,"
Citi analyst Clarke Wilkins said in a note to clients.
Debt-laden miners including, Rio Tinto Ltd and OZ Minerals Ltd, are trying to sell
assets to pay-off onerous debt obligations.
Rio Tinto, the world's third biggest mining company, has confirmed talks with major
shareholder Chinalco about a potential capital injection and the sale of minority
interests in various operating businesses.
When BHP Billiton releases its results early on Wednesday, market watchers will be
looking for commentary on commodity markets and any further asset writedowns by BHP
Billiton.
"I think writedowns are going to be the key factor, and of course, the impact that
commodity price falls will have on underlying earnings," Fat Prophets analyst Gavin
Wendt told AAP.
"BHP has been a bit vague so far on writedowns, it has only been with the release of
the December quarterly report that they have come out with Ravensthorpe and nickel."
The company shut and wrote down the value of its Ravensthorpe nickel mine in Western
Australia last month after a significant drop in the price of nickel, which is
primarily used in the production of stainless steel.