Falling prices and high costs hit BHP Billiton's profits

BHP Billiton, the world's biggestmining company, saw profits fall by 57 per cent in the six months to December, as falling commodity prices and high operational costs took their toll.

The group blamed "a rapid deterioration in market conditions" for profits of $2.6bn (£1.8bn) compared with $6bn in the same period of 2007, on revenues up 17 per cent to $29.8bn.

But without exceptional costs – including $3.4bn for the suspension of the Raventhorpe nickel mine in Australia and $386m for the withdrawn offer for Rio Tinto – attributable profits were up 2 per cent to $6.1bn, in line with analyst expectations. And BHP is in an enviably strong cash position, at a time when heavily indebted rivals like Rio and Xstrata are struggling. The company saw cash flow rise 74 per cent to $13bn in the period, and net debt dropped by 51 per cent to $4.2bn, leaving gearing of just 9.5 per cent.

Marius Kloppers, the chief executive of BHP Billiton, said: "We believe the company is in terrific shape, with a diversified portfolio producing assets that are cash generative throughout the cycle and a balance sheet that leaves us in strong shape to capitalise on our own assets and other opportunities."

The company is openly on the look-out for potential acquisitions, including some of Rio Tinto's assets. "The fact we haven't executed anything means we probably haven't identified opportunities which fit properly," Mr Kloppers said. "If and when these opportunities arise, we have the capacity to act."

The mining sector has been hit hard by falling commodity prices as economic growth slowed, particularly in India and China. But raw material costs have not fallen equally far. Earnings from BHP's metallurgical coal division shot up by 497 per cent, iron ore profits rose 148 per cent, and petroleum by 36 per cent, all thanks to unprecedented prices. The base metals unit made less than half last year's profits, aluminium fell 56 per cent and stainless steel materials was off by 194 per cent.