The global market is awash with uncertainty ranging from the debt crisis in Europe to a possible real estate bubble in China bursting. With so much uncertainty looming one might want to consider a mega cap multinational that will give you protection on the downside as well allow for capital appreciation and at the same time paying a 3.1% dividend yield. BHP Billiton (BHP) operates as a diversified natural resources company worldwide. The company engages in the exploration, development, and production of oil and gas; mining and refining of minerals as well as development of potash deposits.
BHP has positioned itself to take advantage of different market conditions in the recent quarter. BHP continued to add to its approved pipeline of high return growth projects diversified across commodities, geographies and customers. BHP FY11 EBIT makeup consists of 51.6% Ferrous, 25.5% Non Ferrous and 22.9% Energy. This diversification into the energy space has allowed BHP to be the seventh largest independent upstream oil and gas company by total resources. BHP's exposure to the energy space will allow it to weather a slowdown that might occur in the minerals space due to the real estate bubble popping in China. Exploration expenditure for the quarter ending 30 September 2011 was US$155 million, of which US$64 million was expensed. BHP guidance for petroleum exploration expenditure for the 2012 financial year is expected to be US$1 billion, excluding onshore US exploration.
BHP in its most recent quarter end production report showed its Western Australia Iron Ore shipments rose to a record annualized rate of 173 million tons per annum a 28% increase over the previous corresponding period. Petroleum production increased 19% in the period, reflecting the successful acquisition of the Fayetteville and Petrohawk onshore US shale businesses, on top of strong operating performance from its existing assets. Quarterly production records were also achieved at New South Wales Energy Coal and llawarra Coal (both Australia), Cerrejon Coal (Colombia) and the Alumar refinery (Brazil). Record material mined and milling rates at Antamina (Peru) coincided with a significant improvement in copper grades. Supply and demand imbalance will persist in the coming years allowing BHP to take advantage of increasing prices and its commitment to increased production.
BHP, in comparison to its competitors (VALE and RIO), over the past year has significantly outperformed both by approximately 15% and 8% respectively. One of the main reasons BHP has been able to do this is because it has diversified across the commodities space and is no longer leveraged to iron ore and other minerals. In the coming year, I see this trend continuing to widen as Vale faces political pressure at home and RIO is still every dependent on mineral prices.