BHP Billiton profit dives to 10-year low on commodities rout

By Sonali Paul

MELBOURNE (Reuters) - BHP Billiton reported its worst underlying profit in a decade on Tuesday, gutted by plunging iron ore, copper, coal and oil prices, and said it would cut spending more deeply to shore up dividends.

BHP and its peers have been hit after they hiked output of iron ore, copper and coal just as demand growth slowed in China, the top global metals consumer, and have been slashing costs over the past three years to cope.

The world's biggest miner reiterated its pledge to never cut its dividend, and lowered its target for capital spending for the year to June 2016 to $8.5 billion from $9 billion previously to help meet the promise.

"Our commitment to our progressive dividend is resolute," Chief Executive Andrew Mackenzie told reporters. "It has withstood many previous cycles and is a key differentiator relative to our peers."

BHP shares jumped 6 percent in early London trade, partly reversing a 9 percent fall in the previous session when commodity stocks globally fell on fears of a hard landing for the Chinese economy.

The market welcomed the sharp cost cuts and the company's lower debt, which will help make the progressive dividend more affordable, three analysts said.

But some investors questioned the wisdom of the dividend policy for a company in a cyclical business.

"We're currently at the point where their earnings are too low for the kind of dividends they're wanting to pay," said Brenton Saunders, an analyst at BT Investment Management.

"Unless commodity prices went up, it looks like they would have to use debt to fund their dividend in this coming year."

BHP, the last of the big five global miners to report results, said its underlying attributable profit fell to $6.42 billion for the year to June from $13.26 billion a year earlier. The result was below analysts' forecasts around $7.73 billion.

Net profit dropped 86 percent, as BHP took $2.9 billion in post-tax charges that it flagged previously, mainly on its U.S. shale and Nickel West businesses.

The miner raised its full year dividend to $1.24 from $1.21, but that was less than analysts' forecasts around $1.27.

The miner said it had achieved $4.1 billion in cost cuts, two years ahead schedule, as it looked to protect its investment grade rating, and said it would generate more savings in the year ahead by working its operations even harder.

CONFIDENT ON CHINA

Mackenzie dismissed concerns that the cost-cutting combined with the rising dividend was coming at the expense of investment in BHP's growth, and said the company was becoming more efficient in how it deployed capital.

"Our growth plans have in no way been put off by increasing our dividend," he said, adding that it would consider acquisitions in copper and oil.

BHP spun off the company South32 to shareholders in May with a string of unloved assets as it sought to simplify down to four main commodities - iron ore, copper, coal and petroleum - but has been hit by sliding prices for all four due to slowing growth in China.

Despite a market panic over the outlook for China, Mackenzie said BHP was confident the world's second-largest economy would achieve 7 percent growth this year.

BHP sees moderate but sustainable growth in Chinese steel production over the next decade, although it trimmed its forecast for peak steel production to between 935 and 985 million tonnes in the mid 2020s, from 1 billion tonnes previously.

(Editing by Richard Pullin)