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BHP Billiton Profit Up But Shares Down On Missed Capital Buyback

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BHP Billiton , the world's biggest mining company, has confirmed plans to split into two separate businesses but failed to impress investors by withholding an expected share buy-back after reporting a profit that missed forecasts.

Profit for the year to June 30 rose by 10% to $13.4 billion from a 2% increase in revenue which reached $67.2 billion. J.P. Morgan had been expecting a profit of $13.9 billion. Citi expected $14 billion.

The final dividend was increased by 4.3% to $1.21 a share but hopes of a capital management program were dashed with a management comment that excess capital would be returned in the most efficient way, without saying when or how.

Share Price Hit By Lack of Detail

That lack of detail saw BHP Billiton shares fall by around 3% in early trade on the London stock exchange.

The division into core and non-core assets was flagged last week with today's announcement adding little new, except to formally name the assets being jettisoned and the senior management team.

Out go under-performing aluminum, thermal coal, manganese, nickel and silver assets, leaving a parent company focused on petroleum, iron ore, copper, steel-making coal and potash.

The formal announcement described the assets being bundled into a yet-to-be named spin-off as high-quality, a description which amused long-term observers of the mining industry who wondered if they really are high quality why are they being discarded.

Discarded Assets Need Own Management

The explanation from BHP Billiton chief executive, Andrew Mackenzie is that the cast-off assets will perform better under separate management.

"We believe they would be more valuable in a purpose built, independent company than they could be in BHP Billiton, Mackenzie said.

The new company will be formed via an equal distribution of shares to existing shareholders in both the London and Australian entities of the dual-listed company.

The new company will be listed on the Australian stock exchange with a secondary listing in South Africa. It will not be listed in London.

Mackenzie said that once simplified BHP Billiton would consist almost exclusively of large, long-life mines.

Focus On Biggest And Best

"With fewer assets and a greater upstream focus, the group will be able to focus and improve the productivity of its largest businesses more quickly," he said.

BHP Billiton's profit increase follows a better than expected 10% increase in the half-year profit of arch-rival, Rio Tinto , which earned $5.1 billion in the six months to June 30.

Profits from iron ore were the major profit contributor for BHP Billiton in the latest year with pre-tax earnings from that division totaling $12.1 billion, up on the $11.1 billion last year thanks to a 20% increase in volume which more than offset lower prices.

Pre-tax profits from copper and petroleum were roughly equal at $5 billion and $5.2 respectively. Coal, aluminum and manganese, three of the business units being offloaded, were marginally profitable.

The chairman of BHP Billiton, Jac Nasser, said that the proposed demerger, if implemented, would accelerate a planned "simplification" of the group.