Jotters have misgivings over BHP's interim results, with one worried about the miner's Petrohawk purchase.

By the time you reach the highest peak of the world’s largest miner – a perch currently occupied by Marius Kloppers – you’ve had more than the odd session of media training. Hence, the language that Kloppers uses is deliberate, crafted to achieve a precise goal. In this morning’s edition of Distillery, The Australian’s John Durie and Barry Fitzgerald illustrate how what Kloppers said – and just as importantly didn’t say – reveals how BHP is showing its first real signs of trouble. Meanwhile, The Sydney Morning Herald’s Malcolm Maiden says BHP’s results speak of a great shift in the Australian mining sector that can be put down to more than just commodity prices.

First up, The Australian’s John Durie makes some great observations to illustrate how the mood of BHP Billiton chief executive Marius Kloppers has shifted, although it should be said he was delivering a set of numbers almost all company bosses will only ever fantasise about.

"But the market is now used to these sorts of numbers and is more interested in the fact Kloppers has just paid more than $15.5 billion for an oil and gas company, Petrohawk, at what looks to be the top of the market. It is looking for signs of misgivings from Kloppers, and the mixed messages yesterday played into the bears' hands… Kloppers quoted extensively for the first time from past colleagues like new Newcrest boss Greg Robinson and recently retired CFO Alex Vanselow underlining the need to ‘live within your means’. The repeated quotes were meant to show that house-cleaning has always been standard strategy. If so, why did Kloppers feel the need to take on the role of a father telling his errant son not once but 55 times to live within his means?"

Durie’s new colleague Barry Fitzgerald adopts a similar strategy (or the complete opposite, depending on how you view it) by looking at what Kloppers couldn’t bring himself to say.

"BHP Billiton chief Marius Kloppers and his new finance man, Graham Kerr, spent nearly two hours briefing the media and then analysts on BHP's interim profit performance. Not once did they mention that the declared profit of $US9.94 billion ($9.18 billion) was down 7 per cent. They did mention the actual figure, but the fact that it was off by 7 per cent – and ever so slightly behind market consensus – did not warrant the attention to detail that came with the mentions of earnings before interest, tax and depreciation-amortisation of $US18.7 billion, up 8 per cent, and underlying earnings before interest and tax of $US15.7 billion, up 6 per cent.”

The Sydney Morning Herald’s Malcolm Maiden says Australia’s mining sector is preparing for a boom that isn’t quite so hot at the moment and many projects will be slowed (if you’re like BHP Billiton) or halted (if you’re like everyone else). The most obvious explanation is the simple reality that this negative turn in commodity prices will take some time to unwind.

"But it is overlaid by structural changes that are seeing China gain decisive capital cost and operating cost advantages in the downstream production of key commodities, including nickel and aluminium. China's rise is undermining the economics of integrated mining, refining and smelting of those minerals in the Western world. Top-tier, low-cost miners and processors including BHP, Rio Tinto and Alcoa have the best defences, but Chinese refineries and smelters are being built for half as much as they can be in the West, and are being operated with costs that are the same, or lower. The hope that Chinese production would be rendered uneconomic by higher electricity costs and a rapidly rising yuan has proved to be illusory: cheap coal-fired power is still flowing in China, and while the yuan has risen, it has not gone up by enough to offset the capital and cost advantage the Chinese processors have.”

And fourthly, credit goes to The Australian’s Bryan Frith who calls the Gunns capital raising for what it is.

"The proposed $280 million recapitalisation of Gunns is a takeover dressed up as a capital raising. Gunns has signed a term sheet with Singapore-based Richard Chandler Capital, a private investment group founded by New Zealand-born billionaire Richard F. Chandler, which contains the key commercial terms under which Chandler will invest $150 million in shares and bonds and up to $130 million will be sought from a renounceable rights issue to existing shareholders. The recapitalisation would hand Chandler a controlling stake of between 39 per cent and 59.5 per cent of Gunns and the issue will be massively dilutive to those holders who don't take up their entitlements. However, the recapitalisation probably also represents Gunns' best chance of finally getting its controversial $2.3 billion Bell Ball pulp mill off the ground in Tasmania.”

Turning back to BHP for this morning’s remaining commentaries, The Sydney Morning Herald’s Elizabeth Knight explores the possibility that BHP Billiton has been a victim of its own success, generating too much cash and devoting it towards two sound takeover attempts that failed – Rio Tinto and PotashCorp – and one unsound push that succeeded – US shale gas. The Herald Sun’s Terry McCrann gives us his take, along with The Australian’s Tim Boreham, who says the numbers suggest that higher costs, particularly labour, will make the big-time profit increases of the recent past harder to find. In his Criterion column this morning, Boreham has some fun with the marketing language employed by Ansell.

Still in big company news, The Age’s Michael West says QBE built its massive share price premium for an insurance company on trust, specifically trust in chief executive Frank O’Halloran. West says that trust is fading fast. Meanwhile, The Australian Financial Review’s Chanticleer columnist Tony Boyd reminds readers that there are a lot of curious observers looking forward to seeing what Mick Davis can do if his company Xstrata is taken over by major shareholder and global commodity trader Glencore International.

Elsewhere, Fairfax’s Insider columnist Ian McIlwraith touches base with Hastie Group.

In economic matters, The Sydney Morning Herald’s Ian Verrender examines the new world trend of building for the long-term, not the short-term, to explain the difference between the financial billions of the pre-GFC era and the mining billions of the aftermath. The Australian’s Commodity Watch columnist Robin Bromby looks at the divergence in demand for liquid commodities and the metals. And finally, The Australian’s Rowan Callick retraces how the Papua New Guinean government has tripped itself up when it comes to foreign investment in its mining sector.


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