BHP Billiton Limited to grow profits for first time in 3 years

Although key commodities are expected to continue falling in price, mining-giant BHP Billiton Limited (ASX: BHP) looks set to grow full-year profits in 2014 and end a three-year losing streak.

Since recognising a massive US$21.68 billion in underlying earnings in 2011, the miner’s profits have progressively worsened as the mining boom has slowed down in pace. However, British bank, Barclays, believes that BHP will report a profit of around US$12.92 billion in August, up from its 2013 underlying result of US$11.79 billion, which would mean an increase of around 9.6%. Other analysts are even more optimistic with UBS predicting a profit of US$13.45 billion and RBC Capital Markets anticipating US$14.7 billion.

The optimistic forecasts have been given despite the fact that a number of BHP’s key commodities are expected to fall in price in the near future. Some analysts have pegged iron ore, which is BHP’s primary revenue generator, to fall to around US$100 a tonne this year, while Goldman Sachs believes copper could fall in value by 15% over the year.

However, a combination of factors should hold the miner in good stead. Firstly, BHP, like other miners such as Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG), has maintained a heavy focus on reducing operating costs and increasing productivity to combat the falling commodity prices. Secondly, BHP has been simplifying its balance sheet by divesting non-core projects which will further save on costs. Thirdly, while there are mixed opinions regarding the future of iron ore and copper, most of BHP’s other key commodities appear to be moving sideways in price rather than down, according to CIMB analyst Michael Evans.

Heavy production increases will also boost revenues and profits in 2014 and beyond. The miner yesterday reported a 9% increase in production of petroleum liquids for the December 2013 half-year, compared to the previous corresponding period, while also reporting a 19% increase in iron ore production and a 6% increase in copper.

Foolish takeaway

The forecasts come as good news for the miner’s shareholders who have watched their shares fall in recent years while the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has climbed to fresh highs. Investors who believe there is still room left to run for the ‘big Aussie’, might consider now a good time to buy.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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