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BHP Billiton tightens its belt as half-year profits take a hit

Last updated: 17:47 24 Feb 2015 AEDT, First published: 18:47 24 Feb 2015 AEDT

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Mining giant BHP Billiton (LON:BLT) will make big cuts in capital spending after its interim profits took a hit due to the falling price of iron ore, coal, copper and other commodities.

Underlying profit in the six months to 31 December fell by 31% to US$5.35bn (£3.5bn), although that was better than industry analysts were expecting.

It comes as BHP’s four biggest products - iron ore, petroleum, copper and coal - have all fallen to six year lows.

In response, the Anglo-Australian mining group has made deep cuts in its spending on exploration and other investment. It spent US$6.4bn during the six-month period, down 23% on the previous year.

Today, it said capital spending for this financial year would be cut 15% to US$12.6bn, and to US$10.8bn in the following financial year instead of the US$13bn previously outlined.

“We started to prepare for a sustained period of lower prices almost three years ago by increasing our focus on efficiency and lowering our investment,” said chief executive Andrew Mackenzie.

The business has also had to contend with lower oil prices and said it will reduce its operated onshore rig count in the US by approximately 40% by the end of the 2015 financial year.

Meanwhile profits for its aluminium, manganese and nickel businesses – areas which the company plans to spin off into a separate company, called South32 – increased, as prices picked up.

Next month the firm is set to publish more details of the demerger.

“The demerger will allow us to continue the process of building an organisation that is truly unique in our sector, and one that is well positioned for success in the face of ever-increasing volatility,” added Mackenzie.

“Simplification will ensure BHP Billiton’s organisation, systems and processes are dedicated to its core assets, allowing us to further improve their productivity.

“Meanwhile, South 32 will benefit from a dedicated management team who can tailor their strategy to suit their own distinct portfolio,” he said.

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