By Rebecca Keenan and Brett Foley
Aug. 18 (Bloomberg) -- BHP Billiton Ltd., the world's largest mining company, may report a 30 percent gain in second- half profit, underperforming its takeover target Rio Tinto Group for the second straight period since making an offer last year.
Net income may reach $9.4 billion in the six months ended June 30, compared with $7.25 billion a year ago, according to calculations from the mean estimate of 11 analysts for full-year profit compiled by Bloomberg. The Melbourne-based company reports today at 4 p.m. Sydney time.
BHP Chief Executive Officer Marius Kloppers, 45, needs to deliver superior earnings growth to convince shareholders they will benefit from his $132 billion bid. Rio, which produces 40 percent more iron ore than its rival, may report a 46 percent gain in profit, according to Austock Securities Ltd.
``BHP will be pulling out all the stops to produce what we might say is a gold medal-type profit,'' said Eric Betts, head of research and strategist at Nomura Australia Ltd. ``They will try to paint themselves as having better prospects than Rio on a standalone basis.''
Shares of BHP rose 2 percent to A$38.72 as of 12:36 p.m. Sydney time on the Australian stock exchange, after gaining as much as 2.6 percent. The stock has declined 3.6 percent this year and Rio's Australian-traded shares have fallen 13 percent.
The key S&P/ASX 200 Index has lost 21 percent this year. London-based Rio's profit in the six months ended Dec. 31 rose 11 percent, compared to a 2.5 percent decline reported by BHP.
`Asian Bubble'
Kloppers is spending $85 billion to expand metal production to meet demand led by China. Commodity prices in July fell 10 percent, the biggest monthly decline since March 1980, as measured by the Reuters/Jefferies CRB Index, after their best first half in 35 years. BHP Chairman Don Argus said last month commodity prices aren't in an ``Asian bubble.''
``We expect that the company will retain its confidence in overall market fundamentals,'' ING Bank NV analysts led by Nick Hatch wrote in a report on August 7. He forecast BHP's annual profit would be $16.3 billion. The company may report a profit of $15.4 billion, according to 20 analysts surveyed by BHP.
Prices for iron ore, coal, copper and aluminum reached all- time highs during the half. BHP reported record consecutive quarterly iron ore production records along with record fourth- quarter output of alumina, copper and manganese ore.
The gain in second-half profit will be driven by ``petroleum, which would be a big help,'' Tim Gerrard, an analyst at Austock Securities Ltd., said by phone from Sydney. ``The other big winner will be manganese.''
He's forecasting second-half underlying earnings of $9.3 billion, up 24 percent on the year before.
Key Driver
BHP increased output of petroleum products by 19 percent in the six months ended June 30, compared with a year earlier, after starting up fields in the Gulf of Mexico and Australia. It wants to raise oil and gas output by 10 percent a year through to 2011. The oil price gained 24 percent in the half.
``The volume growth in iron ore and the oil price has been a key driver'' in BHP's profit, said Ken West, a partner at Melbourne-based Perennial Investment Partners Ltd. where he helps manage the equivalent of A$2.8 billion. He's expecting full-year profit between $15 billion and $16 billion.
Production of iron ore also increased by 19 percent in the half. This compares with Rio's 14 percent growth for the same period. Iron ore prices have increased fivefold since 2001 and this year BHP and Rio won price gains of as much as 97 percent. BHP predicts its production of the steelmaking material will increase 23 percent this fiscal year to 137 million tons.
`Disastrous'
BHP's profit growth for consecutive halves will outperform Rio's, gaining 55 percent from the six months ended December compared to 30 percent, according to Austock's Gerrard.
``Rio had a disastrous June half last year and was coming from an unusually low period,'' he said. Rio reported a 14 percent decline in the six months ended June 30, 2007, compared with the year earlier. BHP's profit increased by 19 percent.
Full-year profit may rise 15 percent to $15.4 billion, according to mean of 11 analyst estimates compiled by Bloomberg. Rio's profit for the 12 months ending Dec. 31 may rise 76 percent to $12.9 billion.
``We would expect (Rio) to be slightly faster on their feet, partly because of the pressures of the bid and partly on their rapid expansion plans in iron ore,'' John Meyer, head of resources at U.K. investment bank Fairfax I.S. Plc, said by telephone on Aug. 13.
To contact the reporters on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net; Brett Foley in London bfoley8@bloomberg.net.
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