BHP Billiton , the world's biggest miner, reported a rare fall in earnings on Wednesday, hurt by labour battles and weaker commodity prices, but the result showed it was still in a different league from its would-be rival: Glencore-Xstrata.

Despite the 6 percent drop in half-year profit to $9.94 billion (6.24 billion pounds), BHP made more cash profit in six months than the $90 billion marriage of commodities trader Glencore and miner Xstrata would have made in all of 2011 -- and from far fewer revenues.

That was largely due to BHP's hugely profitable iron ore business, a strength it shares with its main rival, Rio Tinto , which separately unveiled a $3.4 billion expansion of its Australian iron ore mines on Wednesday.

The capacity for this organisation to redirect, adapt and steer things while keeping the overall cash investment and cash generated at relatively stable levels, we believe, is unparalleled in the industry, BHP's chief executive, Marius Kloppers, told analysts in a results briefing.

BHP's relatively low cost base and diverse range of high-quality, long-life assets have so far outweighed market concerns over the global economic outlook, despite BHP again warning on Wednesday of volatile prices until at least year-end.

In the short term, Kloppers said he was less worried now than he was late last year about Europe, where a sovereign debt crisis had threatened to spill over into trade finance. And he showed continued faith in China, though BHP said in a statement:

In the longer term, we expect the rate of growth in steelmaking raw materials demand, particularly in China, to decelerate as underlying economic growth rates revert to a more sustainable level.

Despite the cautious outlook, BHP was confident its ambitious expansion projects and recoveries in its Escondida copper and Gulf of Mexico oil businesses would drive solid growth in the next 12 months and further.

As expected, it did not announce any new share buybacks following a $10 billion buyback and $17 billion in shale gas acquisitions last year, saving its cash for expansion projects in iron ore, coal, copper and potash.

Investors said it made sense for the company to maintain a conservative balance sheet in an uncertain environment, although some had hoped it would return more capital to shareholders.

They could scale back a bit of their capex and redirect some of that flow towards higher dividends or share buybacks, said Simon Bonouvrie, a portfolio manager at Platypus Asset Management, which has A$950 million under management.

However he added the company's growth projects would eventually reward investors.

BHP's shares slipped 0.4 percent on Wednesday after its interim dividend of 55 cents came in just below forecasts, held at the same level as last year's final dividend.

HUGELY PROFITABLE

The proposed Glencore-Xstrata merger, unveiled on Tuesday, would create a new mining giant eager to break into iron ore, mining's richest and most closely guarded industry which is dominated by Brazil's Vale SA , Rio Tinto and BHP.

Glencore-Xstrata is currently a peripheral player in iron ore, a deficiency that shows up in its results.

BHP's net profit before exceptionals fell to $9.94 billion for July-December from $10.7 billion a year ago, roughly in line with an average forecast of $10.0 billion.

For calendar 2011, it made $38.5 billion in earnings before interest, tax, depreciation and amortisation (EBITDA), more than double the $16.2 billion that Glencore-Xstrata gave as their combined earnings for last year, had they been a single firm.

BHP generated its EBITDA, a form of cash profit, from less than half the revenues, achieving a margin of 51 percent, dwarfing the combined Glencore-Xstrata margin of 7.7 percent.

$80 BLN INVESTMENT PLAN

BHP stuck to its plan to splash $27 billion on projects, as part of a massive $80 billion spending plan over the five years to 2015, but Kloppers refused to be tied down on plans for the expansion of the massive Olympic Dam copper and uranium mine, due for a final investment decision by June.

We do not like to talk about the capital costs and schedule of things that are not yet approved, he told analysts.

BHP, battling unions in Australia -- as are its peers everywhere from South Africa to Canada -- warned that rising labour costs will remain a challenge.

Iron ore made up half of the group's earnings, with underlying profit from the core ingredient in steel rising 36 percent to $7.9 billion, boosted by strong growth in volumes.

Petroleum earnings, a focus for investors concerned about the company's push into shale gas in the United States last year, rose 38 percent, with a four-month contribution from Petrohawk, its biggest U.S. gas acquisition.

Investors are worried the move into shale gas will dent BHP's returns for some time as a gas glut has knocked U.S. natural gas prices down nearly 50 percent since last June.

Kloppers shrugged off the concerns, saying the company would make up for the weaker gas prices by focusing on stepping up production from shale gas wells with liquids and saying the company remained committed to pursuing U.S. gas development.

But there are some portions of that which even at today's low gas price makes a contribution, he told reporters.

(Additional reporting by James Regan, Miranda Maxwell and Mark Bendeich; Editing by Richard Pullin and John Mair)