How BHP Billiton Has Fared During 2012

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LONDON -- BHP Billiton  has gained about 9% to 2054.50 pence in 2012, making the share one of the year's steadier performers in the FTSE 100 (UKX). During the same time, the blue-chip index has gained 4%.

BHP Billiton, the world's biggest diversified miner, has fought hard this year against a backdrop of moderating growth in China and general weakness in Europe, as well as lower commodity prices threatening the firm's future growth.

In February, the company reported its half-year results for the final six months of 2011, and the numbers looked strong. Though profits slipped 6%, the company posted cash flow of $12.3 billion and operating profits of $15.7 billion (up 8%). The interim dividend, at 55c, was up 20%.


Then, in August, the company's year-end numbers were released and showed net operating cash flows of $24.4 billion, down some 19%, though BHP's return on capital was a healthy 23%. Underlying earnings, meanwhile, dropped 15% to $27.2 billion due to industrywide cost pressures and a weakness in some of the commodity markets where BHP operates.

BHP, which has not cut its dividend in 100 years, issued an 11% increase in the fiscal 2012 year-end payout.

Due to intensive capital spending, BHP saw its level of debt increase by 150% during 2012 pushing the company's debt to equity ratio to nearly 45%. With fears of further falls in commodity prices and rising debt, the management of the company has scaled back the pace of spending -- with some major projects being put on hold. Management is also selling non-core projects.

Things may not be going perfectly for BHP, but the company's diversification -- both geographically and across commodities -- has helped it weather the recent commodity markets better than its peers Rio Tinto -- which is more reliant on iron ore and aluminum for its business -- and Anglo American, which has had the double-whammy of its heavy exposure to the troubled South African mining market and iron ore.

BHP's management is focused on a strategy of improving margins and diversifying into a resources company, rather than operating as a pure miner. This strategy may be starting to benefit shareholders, who are no doubt looking to BHP to rationally grow production in a weak pricing environment, while at the same time cleaning up its balance sheet in order to support its 3.6% yield, which is above the average of 2.9% yield for the mining sector.

The company reckons much of the pain could be behind BHP now and expects more stable, though flat, macro-economic conditions going forward. That, and its successful commodity diversification strategy, appears to make the directors cautiously optimistic about the future and that should make investors cautiously optimistic too.

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The article How BHP Billiton Has Fared During 2012 originally appeared on Fool.com.

Jill Ralph has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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