BHP Hungry for Acquisitions, Despite Falling Profits

By Mike Caggeso
Associate Editor
Money Morning

Despite posting a 57% drop in its fiscal first half profit, BHP Ltd. (ADR: BHP) is looking to acquire smaller companies and assets with its strong cash flow.

This is especially the case now that commodities have sunk from record levels last year, forcing down the market value of the companies mining them.

We always have something that we're looking at, but I think that our window of opportunities would... extend a little bit further, given the weakness that we're seeing in markets,” BHP’s Chief Executive Marius Kloppers said in a conference call, Reuters reported. “The fact that we've haven't executed anything means that we probably haven't identified opportunities which fit properly.

But if and when such opportunities arise, BHP has the capacity to act, he said.

With respect to which specific companies and assets his company might be interested in, Kloppers remained vague. While BHP dropped its $66 billion hostile takeover bid for rival Rio Tinto PLC (ADR:RTP), analysts believe certain Rio assets could still be of interest to BHP.

Rio Tinto, which has a debt load of nearly $39 billion,  could be interested in selling off its 30% stake in the world’s largest copper mine, Chile’s Escondida, for instance.

Kloppers said he is “very, very pleased” with the performance of BHP’s petroleum unit, and expects to continue investing in it even when demand lifts prices back up.

First-half earnings for the petroleum unit jumped 36%, mostly on higher output, Melbourne-based BHP said in a statement.

BHP has been actively pursuing other energy projects. In the past six months, the company won approval for a litany of investments, including:

  • $625 million for the Turrum gas project off Australia’s southeast coast
  • $245 million for an upgrade of the North West Shelf venture’s Cossack oil project
  • And $180 million for an expansion of the Angostura gas project in Trinidad.

BHP is also developing projects in the North Atlantic, Gulf of Mexico, and the Pyrenees and Kipper ventures in Australia, Bloomberg reported.

BHP Earnings Holding Up

For BHP’s fiscal first half, the six months ended December 31, the company reported a 17% sales increase to $29.8 billion. Profit, excluding one-time items, rose 2.2% to $6.1 billion.

BHP booked $3.5 billion in one-time charges, including $2.7 billion for mine closures and a $386 million charge for abandoning its takeover bid for Rio.

Cashflow from operations rose 74% to $13 billion.

The cashflow was incredible and that balance sheet is really important,” Peter Arden, an analyst at Ord Minnett Ltd., an affiliate of JPMorgan Chase & Co. (JPM), told Bloomberg.

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