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BHP: Emerging Markets Are Where It's At

BHP Billiton reports stronger-than-expected profits for the second half of 2009, but cautions that the developed economies are recovering weakly.
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MELBOURNE (TheStreet) -- BHP Billiton (BHP) - Get Report, which reported stronger-than-expected profit for its final half of 2009, said it was "cautious" about the tentative economic turnarounds in the U.S. and Europe

Surging iron ore prices, and base metals in general, appeared to help the diversified miner, the world's largest, in the last six months of 2009 -- prices lifted by breakneck demand from China during those months, along with strong demand from India.

"Despite this positive momentum, we remain cautious about the speed and strength of the global economic recovery across the developed world," BHP said, adding that China's recent moves to stem lending and control asset inflation may be a "further variable" in the complex calculus of economic recovery, and thus demand for raw materials.

The company also said that China, India and emerging economies generally will continue to dictate commodities prices. "Over the long term, we continue to expect emerging economies' growth to strongly outperform the developed economies as they follow a path of continued urbanization and industrialization."

Indeed, BHP was a little critical of the developed nations, saying that stimulus packages there hadn't "fully addressed" unemployment and excess manufacuturing capacity in those economies, which would of course impede recovery.

Still, in a bullish signal, BHP continues to spend on new mines, whether through its own exploration or buying smaller mining outfits. The company said it will increase its capital expenditure budget by 17% in 2010 from a year ago and by the same percentage in 2011, which would bring that year's total spending to $20.8 billion.

The company, for example, has made a much ballyhooed push into the potash market of late. It's also involved in major projects to develop aluminum, iron ore and energy coal mines, as well as oil and gas wells.

Some analysts liked what they heard Wednesday, including Anthony Rizzuto, of Dahlman Rose in New York, who has a 12-month price target of $95 on BHP's American depositary recepits. "We would view BHP as a cornerstone investment in any basic materials portfolio," he wrote in a note to clients Wednesday morning.

BHP's New York-listed ADRs were trading Wednesday at $70.14, down 1.4%, after surging some 5% during the previous session.

On Wednesday morning in Australia, which is 16 hours ahead of the U.S. East Coast, BHP released results for the six months ending Dec. 31, saying its profit, boosted by the sale of its failed Ravensthorpe nickel mine in Australia, rose more than 100% to $6.1 billion from $2.6 billion a year ago.

But, taking out the nickel mine sale and other items from the corresponding 2008 period, BHP's profit declined 7% year-over-year, to $5.7 billion. Nonetheless, that bested analysts' expectations of $5.1 billion.

Revenue fell 17.5% $24.6 billion from $29.8 billion a year ago.

Prices for base metals have soared since the lows of last March, but they're still not to the level seen in the last six months of 2008, before the financial meltdown and recession.

BHP and its iron-ore compatriots --

Rio Tinto

(RTP) - Get Report

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and

Vale

(VALE) - Get Report

-- will likely get a boost this spring

when the big three settle their annual iron ore contract with China

, which has by far and away the world's largest steel industry. Market observers say that the contract price for iron ore, a key steel ingredient, could jump by 40% from last year's depressed level. China is likely haggling for a 20% cut.

The annual ore negotiations have grown intense, like a miniature regional Cold War. On Wednesday, for instance,

China said that it would try several employees of Rio Tinto who it detained last year on charges of bribery and industrial espionage

.

It's Iron Ore Week on Wall Street: Brazil's Vale is set to report its latest earnings results after the bell Wednesday; Rio Tinto will post on Thursday.

-- Written by Scott Eden in New York

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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining TheStreet.com, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.