Global Mining Companies Announce Biggest Profit Decrease in More Than a Decade

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Researched by Industrial Info Resources Australia (Perth, Australia)--Major global mining companies have announced their biggest profit decreases in more than a decade and are planning multi-billion dollar write downs on poorly performing assets. Many of the companies have starting bringing in new executives.

Resources giant BHP Billiton PLC (NYSE:BHP) (London, England) has posted a third consecutive profit decline, largely because of last year's huge drop in iron ore prices. Profits for the half-year ending December 2012 (excluding special items) stood at $5.69 billion, which represents a 43% decline from 2011's second half. Dividend payments are tipped to increase to 57 cents a share from 55 cents, following a call by shareholders to invest less and return more to them.

A sharp drop in commodity prices likely drove down profits, forcing the mining giants to cancel expansion projects, cut costs and sell off assets. BHP's diverse portfolio makes it less exposed to iron ore's earnings than Rio Tinto Group (LSE:RIO) (London) or Fortescue Metals Group (ASX:FMG) (Perth, Australia). Iron Ore has increased almost 80% to $150 per tonne since last September's low of $87 per tonne.

Chief executives are being criticized for spending excessively during boom years on projects and acquisitions, instead of more generously returning rewards to shareholders. A major shareholder in BHP and Rio's Australian stock said the fund has been urging both companies to pay out more of their profit to shareholders.

"The logic of not paying out a higher dividend to shareholders is so the company can use the funds effectively for a desirable return on investment," said Ross Barker, Managing Director of Australian Foundation Investment Company.

Rio Tinto CEO was recently asked to leave after problems with aluminium business in the Pacific and their coal assets in Mozambique; this followed other write-downs and price acquisitions. Rio Tinto's new CEO has said that he would take a more aggressive approach to selling assets that no longer fitted the company's goals. Rio Tinto's new CEO led its iron ore unit for nine years. During this time, he was securing stakes in high-quality deposits and automating operations with driver-less trucks and trains.

Rio Tinto's full year profit is expected to drop 42% to $9.08 billion, and iron ore is expected to make up close to 90% of earnings. Rio Tinto is looking to sell off Pacific Aluminium and has set a target to cut $5 billion in costs by the end of 2014. BHP Billiton, the biggest global miner, is expected to report a 43% drop in profits to $5.69 billion for the first half of its financial year and is continuing to address plans for cost-cutting targets. Analysts are predicting BHP Billiton write-downs of between $2 billion and $3 billion on its aluminium assets.

BHP Billiton, Anglo American Plc (LSE:AAL) (London) and Xstrata PLC (LSE:XTA) (London) also are undergoing major handovers at the senior level.

All monetary amounts are in U.S. dollars.

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