BHP Can Overcome Any Obstacle

NEW YORK (TheStreet) -- Investors can usually bank on operations, and in the mining game, operations count.

BHP Billiton (BHP) showed strong operational performance last year.In the first half of fiscal 2014, its profit increased 31% year over year. The company's good performance resulted from a disciplined approach in capital allocation, spending primarily in the higher-margin regions.

BHP has 19 projects in the execution stage. Most of them are expected to deliver their first production before the end of its 2015 fiscal year, with subsequent improved production in volume and revenue.

BHP and peers Rio Tinto ( RIO) and Fortescue Metal Group ( FSUGY) are increasing iron production in the Pilbara region of western Austraila. BHP is increasing the annual production capacity of its Jimblebar mine there to 35 million metric tons by the end of 2015. The mine will increase its annual iron ore production capacity to 220 million metric tons.

Significant growth in supply, including similar increased production from Rio and Fortescue, will exceed the amount of global iron ore demand in total, in turn bringing iron ore prices down.

Still, even if prices fall, incremental production in the Pilbara region will benefit the company. BHP's earnings before interest and tax from the region are about 57%. Therefore, with additional iron ore production from the region, BHP can sell an increased volume at a higher margin.

Positive long-term fundamentals for the U.S. shale gas business

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