The super-miner BHP Billiton (LON:BLT) tightened its belt and gave a gloomy assessment of prospects for China as it reported a sharp fall in annual earnings.
Faced with a steep decline in prices of commodities such as iron ore, coal and copper, the Anglo-Aussie giant said capital investment fell by almost a quarter to US$11bn in the year just gone.
The figure will go down to US$8.5bn and then US$7bn by 2017. This means that big mine developments will be shelved or scrapped completely and it suggests that co-investment in projects will be severely curtailed.
Analyst expect this to have a trickle-down effect on the mid-tier and small-cap operators and mine developers.
In an effort to shore up profits, BHP boasted productivity gains of US$4.1bn a year – a target it delivered two years ahead of forecast.
On China, it said it had it reduced its forecast for peak iron ore demand to between 935 and 985mln tonnes a year by the middle of next decade. It is not known what it was predicting before the revision, but chief executive Andrew Mackenzie told investors: "In the short term we expect ongoing economic reforms in China to contribute to periods of market volatility.”
Whichever way you cut them, the headline figures made grim reading. On a statutory basis, underlying earnings, or EBITDA, fell 62% to US$8.67bn in the 12 months to June 30.
The underlying figure recorded a 28% drop to US$21.85bn, while if you delve right into the profit and loss account, the net profit comes in at US$1.91bn compared with almost US$14bn a year earlier.
With spending cuts in train and net debts of US$22.4bn it was perhaps a surprise to see BHP’s continued commitment to a progressive dividend policy. The increase was 2% to 124 cents a share.
The shares, off 27% in the last year, rose 6% in early trade.