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CHINESE BOOM TO GO ON, SAYS BHP

GROWTH: Kloppers said Rio bid made even more sense

Tuesday August 19,2008

By Andrew Johnson

MINING giant BHP Billiton yesterday insisted Chinese demand for minerals and metals would continue to fuel strong profits despite fears the global economic slowdown was hitting its economy.

Chief executive Marius Kloppers said its $130billion (£68billion) all-share takeover bid for rival Rio Tinto “made more sense than ever”, with economies of scale increasingly important.

He was speaking as the company unveiled a12.4 per cent rise in pre-tax profits to a record $15.4billion on revenues up 25 per cent to nearly $60billion. The shares rose 8p to 1537p.

Growth was driven by high commodity prices on the back of strong Chinese demand. However, commodities started falling as the global economy weakened.

Kloppers said China was undergoing a “massive industrialisation” and demand for core commodities such as iron ore and copper would remain strong.

“Elements of Chinese exports are suffering but China is not an export-led economy — it is really an economy
fuelled by domestic demand and I am quite confident that will remain strong in the long and short term,” he said.

He predicted commodities to suffer would be metals such as aluminium, used widely in developed economies for items such as fridges.

Another factor keeping commodity prices high was supply problems,

particularly bringing new production on stream, he said. It can take up to four years to develop new copper and coal mines because of long lead times on heavy equipment.

Group costs rose $1.2billion, reflecting the higher energy costs and a string of one-offs.

Consolidation was desirable, Kloppers added. “Scale is very important where you need to produce things cheaply and in greater volumes.”

This was equally true for the oil industry, he said, expressing surprise that a tie-up between two majors had yet to happen.