You cannot judge the content of a book by its cover; this would be the saying that aptly describes the present position and possible destination of BHP Billiton (BHP). The reason for this observation is that it is somewhat hard to state right now if BHP Billiton would rise or fall given the mixed nature of the occurrences surrounding its stock.
For instance, it was reported not so long ago that BHP had plans to sell some of its assets (the Ekati diamond mine to be precise) in a bid to raise more money and increase dividends for shareholders. It was also reported that a little more than a half of its Chidliak diamonds exploration project in Baffin Island in Canada were to be sold to Peregrine Diamonds.
However, it may interest you to know that De Beers, the world's largest diamond miner, has rendered all speculations that it might be interested in BHP useless. News has it that De Beers was linked to the purchase of an 80% stake in the said diamond mine. However, it is now being reported that De Beers has backed out away from making any such offers even though it once entered the auction. In essence, the mere fact that a big player in the diamond industry such as De Beers is not interested may be an indication that BHP may be forced to hold onto the Ekati diamond mine at least until it gets a reasonable offer. Hence, shareholders would need to wait until much later before they can smile to the banks for an increase in dividends.
In another related development about BHP's sale of assets, news has it that there is a high probability that BHP will put an abrupt end to its potash development plans in the African country of Ethiopia. It was reported that BHP might soon initiate a process for auctioning off its equipment because it has already closed down the camp at the mining site. Interestingly, BHP has not said much about the speculations, and thus, the news in taking different dimensions in different quarters. However, in quoting a BHP spokeswoman Kelly Quirke "In general, the location of our exploration programs will change over time as opportunities emerge and gas exploration programs are completed or transitioned to another business within BHP Billiton."
It can be inferred from the quote that BHP is probably undergoing a shift in the focus of its core business and it may no longer attach the same importance to potash as it once did. In fact, there are speculations that the move to get out of the Ethiopian deal is necessitated by need to be focused on the Jensen project that is domiciled in Canada. If this is the case, it leaves no room for doubt that BHP considers the Canadian project a potentially more profitable project than the Ethiopian project on the one hand, or that it is serious about cutting back its $80 billion spending plans. However, with mining operations in Canada scheduled for 2015, one can only hope that the management had made a smart decision in shutting down Ethiopia.
Nevertheless, there are some positives going on for BHP right now. For instance, BHP has concluded a deal that will see it holding five exploration licenses and a license application for a total of about $3 million. The exploration rights that were sold by Tasman Resources will surely increase BHP's presence around the Olympic Dam mining operations in Australia. However, given the present pattern of holding back and postponing action that BHP that seems to characterize many of BHP's latest actions, it is doubtful that any meaningful activities would commence on the site any time soon. In fact, it was reported that the direction that activities on the Olympic dam would take is still up for discussion when BHP's board meets at the end of the year.
However, if you are a fan of Rio Tinto (RIO), you may be interested in knowing that BHP's purchase would not have an adverse effect on the previous deal between Rio Tinto and Tasman. It was gathered that the deal would allow Rio Tinto to have an 80% stake in a Vulcan prospect that is being spearheaded by Tasman in a place located about 30km north of the Olympic Dam.
Interestingly, both BHP and Rio Tinto are in line to experience a respite from the reduction in demand caused by a decrease in the Chinese demand for their products. This assertion is made in lieu of the fact that is has been confirmed that China has approved the expenditure of $23 billion in steel projects. This would surely lead to an increase in the demand for iron ore in the market and both miners can expect to benefit from the change in market conditions.
Another BHP competitor, Yamana Gold (AUY), a Canadian miner, is set to acquire Extorre Gold Mines which happens to be another Canadian Miner. The acquisition deal is valued at about $395 million. It was further reported that Yamana is interested in focusing on organic growth, hence, it is not surprising that its CEO said that it is interested in "tuck-in acquisitions in mining-friendly and familiar jurisdictions that fit our other criteria including opportunity for organic growth, accelerated path to development and production and high return."
Other competitor news has it that giant miner Barrick Gold (ABX) has abruptly terminated the appointment of its CEO, Aaron Regent. The move is at best an irrational move and one can only pray that Barrick Gold will not pay for the costly mistake with a long stay in the bearish territory.
More so, you should not be surprised to find Freeport-McMoRan (FCX) on the line of stocks headed for disaster right now. This assertion is made in lieu if the fact that it is no longer news that it gathers at least 70% if its revenue from copper production. Thus, with speculations that the demand for copper may be reducing, it is possible that Freeport-McMoRan will suffer a negative fate.
Conclusively, on the issue of BHP and fact that it is still too early to make conclusions about its fate, it may interest you to know that Zacks has maintained a neutral rating on the stock. In essence, I would tell you to look before you leap as BHP is concerned, because you cannot judge a book by its cover.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.