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BHP Billiton in spending boost

GLOBAL mining heavyweight BHP Billiton today announced plans to ramp up its spending despite its interim profits falling victim to the commodity downturn in 2009.

The FTSE 100 group posted a 7 per cent drop in profit to $5.7bn (£3.6bn) in the final six months of 2009 as “significant volatility and continued uncertainty in the global economy,” drove its profitability down – but was still above forecasts of $5.1bn.

Its profit including exceptional items shot up 134 per cent to $6.1 billion thanks to the reversal of an impairment charge for Ravensthorpe.

BHP now plans to ramp up its capital spending to in excess of $20bn next year from the current $12.8bn and said it had the financial might to make “opportunistic” acquisitions.

“Commodity markets will continue to be largely dependent on Chinese and Indian demand,” it said. “Over the long term we continue to expect emerging economies' growth to strongly outperform the developed economies as they follow a path of continued urbanisation and industrialisation,” the company said.

In the meantime the drop in commodities prices and unfavourable exchange rates saw global revenue drop 17.5 per cent to $24.5bn.

While commodity prices enjoyed a recovery in the latter half of 2009, realised prices for the most of BHP’s products were lower than the prices achieved during the December 2008 half-year. The strength of operating currencies against a weak US dollar also negatively impacted costs.

BHP said that a recovery in demand, particularly across the steelmaking raw materials division, and its first production of in three major projects during the six months had helped to stave off further losses and help the company put in a “sound financial performance.”

The company enjoyed particularly robust iron ore output which shot to record production levels for the half year, as operations benefitted from infrastructure improvements and the Samarco plant in Brazil operating at full capacity.

It has declared an interim dividend of 42 cents, an increase of one cent.

Today’s results echo those of Xstrata, which reinstated its dividends earlier this week after an 18 month dearth amid forecasts that commodity demand is set to gather momentum.

However, BHP did warn that a shortage of skilled workers in Australia could cause problems. Chief executive Marius Kloppers said the shortage had come about quicker than expected, and follows hot on the heels of Australia’s Immigration minister’s pledge to increase the amount of skilled migrants.

Marc Elliot of Fairfax commented: ”BHP highlights a shortage of skills in Australia that has come about more quickly than expected. Prior to the global economic crisis the mining sector was facing major inflationary pressures driven partly by a skill shortage. This is a sign that the industry could soon start facing similar inflationary pressures.”

Shares in the mining giant slipped just shy of 1 per per cent to 1868.50p.