BHP Billiton plans to pour $80 billion into expansion over the next five years rather than chase ambitious takeovers, the world's biggest miner said after booming demand for iron ore and copper helped nearly double its first-half profits.

Chief executive Marius Kloppers, yet to conclude a major deal for BHP, said the preference was to spend on expansion due to difficulties securing large acquisitions and as the commodity cycle had raised price expectations for potential assets.

As one looks at a buy versus build equation, the clear opportunity for us is to continue to invest money in our organic portfolio, Kloppers told analysts on Wednesday.

The Anglo-Australian company also said it would more than double its share buyback to $10 billion this year, bowing to investor demands to hand back some of its growing cash pile.

The biggest surprise is the commitment to spend $80 billion over the next five years, said James Bruce, portfolio manager at Perpetual Investments, one of BHP's top 10 Australian shareholders.

This demonstrates the challenges that the industry is having satisfying rising demand, while replacing declining production from mature operations, he said.

Strong demand from China and India has spurred BHP and its rivals Rio Tinto and Xstrata to spend over $110 billion on expansion projects in the next five years.

BHP has ditched three major deals in the past three years, including its $39 billion bid for top global fertilizer maker Potash Corp last year, mainly on regulatory concerns.

While Kloppers played down the prospects of any near term acquisitions, investors doubted deals were off BHP's agenda.

They're on the backburner only to the extent that at the moment with today's inflated commodity prices they would probably have difficulty finding anything which would create value, said Peter Chilton, analyst at Constellation Capital Management.

Kloppers forecast a strong outlook for commodities markets due to tight supplies, a factor he said industry analysts had long underestimated, but like Rio Tinto last week, warned prices could be volatile.

He also confirmed he had harbored concerns about Chinese and competitor espionage of his business, citing it as a reason behind his push for market pricing of key commodities such as iron ore.

BIG BUYBACK

Fueled by record or near record prices for iron ore, copper and other metals, BHP's attributable profit before exceptional items soared to $10.7 billion for July-December from $5.7 billion a year ago, beating an average forecast of $10.3 billion from 14 analysts.

First-half earnings from iron ore nearly tripled, while earnings from base metals, including copper, jumped 45 percent. Petroleum earnings, which set BHP apart from its mining peers, rose 23 percent.

BHP's $10 billion buyback, expanded from $4.2 billion, follows Rio Tinto's plan to return $5 billion to shareholders over the next two years.

Investors had high hopes for a big share buyback as BHP is nearly debt free, its cashflow is booming and its failure to complete major takeovers limit its expansion options.

In the two weeks ahead of the results, BHP's shares rallied 9 percent in Australia to a 33-month high on expectations of a buyback. Its shares slipped 1.6 percent on Wednesday partly as its dividend increase was disappointing to retail investors.

BHP raised its interim dividend by 10 percent to 46 cents, below forecasts for 49 cents.

BHP's $80 billion expansion plan over the next five years includes expanding its Olympic Dam copper and uranium mine in Australia, with a decision expected in 2012, and the Jansen potash project in Canada.

Paul Galloway, mining analyst at Sanford Bernstein, said the $80 billion investment was eye-catching, but noted the average annual spend over the five years was not much bigger than Rio Tinto's plans for 2011 and 2012.

Where we do see a significant difference between these two companies is the rate of project approvals in recent months, the London-based analyst said. He noted BHP approved one new $1.1 billion growth project in its first half, while Rio has announced almost $6 billion in approvals since last September.

BHP's shares were down 1.8 percent in London at 1133 GMT, underperforming a 0.5 percent rise in the FTSE 100 and a 0.5 percent climb in a British mining index.

(Additional reporting by Jim Regan in SYDNEY and Julie Crust in LONDON; Editing by Anshuman Daga, Dean Yates and Jane Merriman)

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