BHP is set to report a surge in profits -- here is what to look for

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BHP Billiton, the world’s biggest miner, is set to report half year results for six months to end December and it should look good.

Soaring iron ore prices coupled with cost cuts will allow the Anglo-Australian miner to boost underlying earnings sevenfold to $US3.1 billion ($4 billion). Same time last year profits came in at $US412 million.

The consensus estimate for dividends is $US0.3 from $US0.16 last year.

Miners are rebounding from a commodities downturn that forced asset sales, cost curbs and a cut in investment to check supply amid a glut. Iron ore surged more than 80% last year thanks to Chinese stimulus that boosted steel output, leading to better demand. Analysts say the resources sector will gain from improved prices for commodities, on top of deep cost cutting and expanded volumes. Earlier this month rival Rio Tinto posted its first profit increase in 2013.

This table shows Deutsche Bank’s forecast for BHP

BHP recorded a net loss of $US6.4 billion in year ended June 2016, its first annual loss since the company was formed in the 2001 merger of BHP and Billiton. Underlying annual profit at $US1.2 billion was the lowest since fiscal 2001.

With the rebound in commodity prices, investors will focus on commentary from BHP about debt reduction and cost cut initiatives. BHP has pledged to unearth another $US1.8 billion in cost savings this year.

Another area that will be closely monitored is BHP’s capital investment plan. Any changes to planned $US5.4 billion capital expenditure forecast for the year as well as any further details on the timing of Spence Hypogene copper project, Caval Ridge coking coal expansion and Jansen potash development, will be in focus, Deutsche Bank analysts Paul Young, Anna Mulholland and Matthew Frydman said.

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