BHP Billiton (ASX: BHP) delivered its much anticipated full-year report after the market's close on Tuesday, announcing its intentions regarding the group's Jansen project as well as a much lower-than-expected profit.
The report
Whilst analysts from Citi had expected the mining giant's profit to fall by 26%, a fall of 31.1% was recognised in profit excluding one-off financial items. Compared to the $17.1 billion reported for FY2012, just $11.8 billion was reported for this financial year. The company cited weak commodity prices and slowing global growth, as well as a temporary increase in the group's effective tax rate and financing charges (which were related to its interest rate exposure on its debt) as the key reasons behind the result.
Furthermore, whilst the final dividend was expected to hit 60c per share, a dividend of 59c was announced, which took the full-year payout to $1.16 per share – up from $1.12 last year.
Although these results were far from ideal for investors, it was other announcements that investors were keenly awaiting.
Jansen
After the breaking down of one of the cartels controlling the potash market, there has been concern over BHP's intentions to continue investing in its Jansen project. After having already spent around US$1.2 billion on the project, many believed that the company should, at the very least, slow down with its expenditure on the excavation of the area.
BHP announced that it would invest a further $2.6 billion over a number of years to finish the excavation and lining of the project, believing that the long-term prospects for potash are strong. The report stated: "as the world's population grows and incomes in emerging economies improve, agricultural demand is expected to rise. This will increase the need for potash and require the construction of new mines."
Although this may fare well for the long term, many investors are concerned about the company's spending and cost-cutting, in line with CEO Andrew Mackenzie's strategy of cutting non-core projects. Regarding this, Mackenzie did flag the possibility of introducing one or more partners into the project as a means of easing costs.
Cost-cutting
In order to improve long-term sustainability and profitability, the group aimed to significantly cut costs. During the year, productivity improvements and a reduction in operating costs were achieved, and a reduction of US$2.7 billion in controllable cash costs was realised. Meanwhile, Mackenzie stated that there would be a "lot more" cost savings to come.
The group also expects capital and exploration spending in FY2014 to be around $16.2 billion.
Commodities
The commodities market has weighed a number of companies down, including BHP's key competitor Rio Tinto (ASX: RIO), as well as pure iron ore players such as Arrium (ASX: ARI). However, Mackenzie believes that a more "balanced" rate of economic growth will be achieved over the long term, which would fare well for company growth.
Iron ore still remains very profitable for the company, which realised $20.2 billion in revenue from the resource (down 10.6% from last year), whilst the returns from coal and aluminium, manganese and nickel were all down on last year too.
The company expects further downwards pricing pressure on commodities due to increased short-term supply.
Foolish takeaway
A lower-than-expected profit for the year as well as an update on the miner's intentions regarding the Jansen potash project are unlikely to fare well with investors. The mining and resources sector remains extremely volatile and, although share prices have soared in recent weeks, it is likely that they will fall once again. As such, it may be wise investing your hard-earned money elsewhere.
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More reading
- Should you be shorting iron ore stocks?
- Investors call for BHP to slow down potash project
- BHP and Rio Tinto employees go on strike in Chile
- A dire outlook for China's economy
Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
