Kloppers Says BHP Has No Plans to Give Investors Cash

By Jennifer Joan Lee and Brett Foley

Aug. 13 (Bloomberg) -- BHP Billiton Ltd. Chief Executive Officer Marius Kloppers said the world’s largest mining company doesn’t have plans to return any surplus cash to shareholders.

“At this point in time we have no plans to return any surplus cash,” Kloppers said in a Bloomberg Television interview in London yesterday. “We believe we have good plans to put that money to work in our business.”

The Melbourne-based company plans $10.7 billion of capital expenditure this year and will spend $5.8 billion to create an iron ore venture with Rio Tinto Group, Kloppers said. It’s also studying potential acquisitions, including some in oil and gas, and will spend “billions of dollars” in coming years to develop the Jansen potash project in Canada, he said.

The company yesterday posted second-half net income of $3.26 billion, a drop of 65 percent from a year earlier, beating the $3.1 billion median estimate of six analysts surveyed by Bloomberg. Net operating cash flow was a record $18.9 billion.

Declines in metal prices also cut profit at Brazilian rival Vale SA by 84 percent in the second quarter and at Switzerland’s Xstrata Plc by 77 percent in the first six months of the year. Xstrata’s operating cash flow slid to $819 million in the second half from $3.1 billion.

‘Financial Clout’

“The scale and financial clout which BHP enjoys over its peer group is clearly evident when you compare its result to that of its smaller rival Xstrata,” said Cameron Peacock, a Melbourne-based analyst at IG Markets. “To produce a record net operating cash flow of $18.9 billion against the backdrop of the global financial crisis is certainly impressive.”

BHP, which increased its full-year dividend 17 percent, gained 0.7 percent to A$38.26 at the 4:10 p.m. Sydney time close on the Australian stock exchange. The stock has gained 26 percent this year compared with the 19 percent gain in the benchmark S&P/ASX 200 Index.

Kloppers, 46, cut output of some metals and eliminated jobs after commodity prices slumped in the second half of 2008.

BHP, which suspended a share buyback in December 2007, scrapped a hostile bid for London-based Rio last November. The transaction would have been the first major acquisition since BHP bought WMC Resources Ltd. for $7.6 billion in 2005.

In addition to the acquisition opportunities it’s studying, BHP plans to become one of the world’s biggest potash producers by developing Canadian assets, Kloppers said. It spent $95 million developing Jansen, which will have an annual capacity of 8 million metric tons of potash, he added.

Portfolio Diversification

“We think that it would round out the diversification of our portfolio nicely,” he said referring to the fertilizer. “It has a different set of drivers and hence would fit well.”

The company’s iron ore unit, the biggest earner in the year ended June 30, accounted for about 20 percent of sales. BHP’s base metals unit, which includes copper, silver, lead and uranium, suffered a 52 percent drop in sales, making it the fourth-biggest earner, down from the biggest previously.

Iron ore producers agreed this year with some steelmakers to cut annual contract prices for the first time in seven years. Talks with Chinese mills, the biggest buyers, are continuing.

BHP said yesterday it had $6 billion of exceptional items in the fiscal year ended June 30, including $3.6 billion for the suspension of the Ravensthorpe mine, $510 million for the sale of the Yabulu refinery and $450 million for the lapsed offer for Rio.

Commodity prices have rallied 15 percent this year as the global recession abates. The rebound may be extended into next year, Nouriel Roubini, the New York University economist who predicted the financial crisis, said on Aug. 3.

China bought record volumes of oil and iron ore in July as automakers, steel producers and builders expanded output to meet rising demand. Oil imports jumped 18 percent and iron ore purchases rose 5 percent, the country’s customs office said on Aug. 11.

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