The world's biggest diversified mining group BHP Billiton has unveiled slightly higher profits, but warned that the first half of 2002 will be "difficult" owing to persistent weakness in the global economy.

Net profit for the second half of 2001 climbed to $1.2bn, up about 3.5% from the same period the year before, the company said on Thursday.

The increase in profits came despite a 5.3% decline in total sales, with firmer prices for carbon steel materials and beneficial currency fluctuations offsetting the impact of a recession-induced slump in most commodity metal prices.

Investors in London welcomed the figures, marking BHP Billiton shares 5p higher at 418p in early trade.

Difficult conditions

The company said that while it has weathered the global downturn well, it does not foresee an imminent return to normal economic growth.

"As yet, there is little evidence of a recovery in the major economies," said BHP Billiton Chairman Don Argus.

"While we are confident of the medium term outlook, the current half year will continue to be difficult."

The company's fortunes are tightly linked to overall economic growth, which determines demand for metals and other mineral resources by industrial users.

Future prospects

However, analysts said that with metal prices now starting to pick up, BHP Billiton is expected to report a further increase in profits next time round.

"We should expect to see earnings improve in the third quarter (of the year)," said Glyn Lawcock, analyst at UBS Warburg.

Investors also welcomed news of a further $270m in cost savings as the company, created in March last year from a merger between Australian mineral resources group BHP and South African mining giant Billiton, continued to integrate its operations.

New operations, including a South African aluminium smelter and plans to develop an oil and gas field in the Gulf of Mexico, are also expected to boost the company's bottom line.

Heavy metal burden

But BHP Billiton's latest results underlined the difficulties faced by mining and natural resources groups during the current economic downturn.

Weak oil prices cut profits at the company's petroleum division by 18% from last year, while profits from base metals - hit by a steep drop in copper prices - fell by 73%.

A recovery in bulk commodities would be of greatest benefit BHP Billiton's Anglo-Australian rival Rio Tinto, which has the biggest exposure to base metals.

On Wednesday, Deutsche Bank tipped Rio as the most attractive mining sector stock.