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Will These Iron Ore Stocks Rise After Their Earnings Releases? BHP Billiton Limited (ADR) (BHP) and More

I have pulled out another set of two Australian miners and I’m sure readers will believing I have been obsessed with Australian companies. However, this time around, the two companies that I have picked out are heavy weight mining companies. Since iron ore prices saw a historic rally in post September period, I am assuming that American investors will definitely want to have a look at the earnings preview of these three iron ore players:

BHP Billiton Limited (ADR) (NYSE:BHP)BHP Billiton Limited (ADR) (NYSE:BHP)

The Street forecasts H1-13 underlying Net Profit After Tax (NPAT) (it is interesting to note that Australian accounting standards require the companies to use the word NPAT as a substitute for Net Profit, Therefore, investors should understand that Net Profit and NPAT is one and the same thing) of US$5.63 billion, up 3% h/h and down 43% y/y. The loss will be the third consecutive half yearly loss. The net debt at 31 December 2012 is expected to increase to US$27.6 billion up from US$23.5 billion at the end of the June half year 2012.

The individual businesses are expected to have mixed results; the Street forecasts the iron ore divisions to report a half year EBIT of US$4.85 billion, down 37% y/y and highlighting the impact of the sharp drop in the iron ore prices during the December half year 2012 as production was largely unchanged y/y. The base metals business is expected to report a half year EBIT of US$1.99 billion, up 21% y/y reflecting the return to higher grades and improved utilization. The Petroleum division is expected to report a half year EBIT of US$2.74 billion, down 30% y/y. An improvement in earnings is expected from the Onshore US business, with an expected EBIT loss of US$112 million, compared to a loss of US$289 million in the June half year 2012. Onshore US EBITDA is expected to improve 35% h/h to US$715 million, despite significant Depreciation & Amortization charges and poor free cash flow from the business. The Energy Coal business is expected to report a half year EBIT of US$253 million, down from US$787 million y/y, while the Met coal business is expected to remain barely profitable. The aluminum business is expected report weak earnings for a third consecutive quarter, with a loss of US$235 million.

In late 2012, BHP drew attention to the need for cost outs in the face of weakening commodity prices (excluding iron ore) in 2013 as a means to drive earnings growth and share price performance. BHP is guiding flat year on year costs in nominal terms in 2013. The market has not rewarded BHP for this and would appreciate greater clarity on the dollar millions of potential cost outs. In addition with this in mind, the Street does not expect any new capital initiatives.