BHP Billiton CEO bullish on China as profit tumbles 86%

BHP CEO 'bullish' on China

BHP Billiton posted a sharp fall in profit, missing analyst expectations in the face of a painful commodity price rout as it warned that economic reforms in China would likely mean further short-term volatility for markets.

The mining giant said profits after tax for the full year ending in June tumbled 86 percent to $1.91 billion, sharply down from $13.8 billion the previous year. Underlying attributable profits also tanked from $13.26 billion to $6.4 billion.

But the group also said its productivity gains of $4.1 billion were two years ahead of schedule and it expects further cost reductions in the 2016 financial year across all businesses.

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Appearing on CNBC's "Squawk on the Street" BHP Billiton CEO, Andrew Mackenzie, said he believed China would continue to grow at 7 percent this year as the country tries to balance its "desire to grow with some side effects of growing too quickly."

"There may be people outside of China who doubt that, but when they were growing at 10 percent we had a number of leading indicators that would substantiate that."

Citing Apple CEO Tim Cook's recent note that demand for its devices is still strong in China as evidence, Mackenzie complimented China's handling of the situation.

"I think they are playing it well," he said. "We're still seeing strong sales of iron ore, coal, and copper moving into China. We're able to place most of our products many weeks and even months forward and there is no evidence that inventory is building up anywhere along the chain."

Investors cheered the results, with the shares climbing to the top of London's FTSE 100, rallying 5.3 percent.

Oil, copper, iron ore and steel have all witnessed severe weakness this year, as the commodity sector in general has plummeted to multi-year lows on fears of an economic slowdown in China.

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But Mackenzie reiterated his confidence in the world's second-largest economy, projecting a much stronger second half of the year than the first.

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The group said despite the lows seen in commodity prices, it managed to generate $6.3 billion of free cash flow during the period, as it improved both operating and capital productivity.

The world's largest miner by market value also reiterated that it would not cut its dividend, and increased its full-year pay out by 2 percent to 124 U.S. cents per share.

Ahead of the group's earnings, analysts at Goldman Sachs said they remained bearish on all four pillars of BHP Billiton - oil, copper, iron ore and coal - over the near- to medium-term, and that earnings momentum for the company remained negative.