"the most obvious victims of this transition continue to be the iron ore suppliers"
One of these days you'll actually base this stuff on data rather than fantasy. Iron ore prices are 3 times cash cost -- I'm sure miners would be happy to "continue to be" "obvious victims" on that basis.
BHP Billiton: I'm Done With This Stock [View article]
There is a lot of posturing going on in Australia: Fortescue announced they would scrap two proposed developments as a result of the proposed new tax. If you believe that this tax will ultimately not get passed into law, then BHP is at least a hold and possibly a buy -- although other events are casting a shadow at the moment.
Things to look for in the aussie press will be signs of the current government losing the next election, and/or signals that the government is open to negotiation about the rate, the benchmark return, and other aspects of the proposed tax. For example Fortescue scrapped projects because apparently financing costs aren't taken into account under the proposed tax regime. Therefore projects that have a major debt component look either less profitable or not profitable under the new scheme. Look for some momentum for changes to the proposed tax. The lobbying seems quite intensive.
My Trading Strategy for BHP Billiton [View article]
FWIW in the short term (next few months) BHP will take a small earnings hit on reduced output from Olympic Dam and possible industrial problems in Chile. On the plus side they will probably get a buyer for the Ravensthorpe nickel project that has cost them so much -- don't have a number handy but it is of the order of 1.5 bill (with a "b"). It loos like Australias largest laterite producer Minara Resources and China nickel producer Jichuan (which is variously reported as having pulled out and still being in the "race") are the main buyer candidates.
Some background: Ravensthorpe is a large nickel laterite project. Laterities have a (much) higher cash cost than sulfides and significantly higher capex. In the current environment they don't look attractive but ultimately, in years to come, most nickel will be laterites as sufide resources become depleted.
Minara is majority owned by Glencore who also (ultimately, stand corrected?) behind Xstrata.
Getting out of BHP Billiton Before the Dollar Rallies [View article]
BHP, Vale and Rio are in a unique position with iron ore. Instead of selling in expectation of correction, I'd be looking to add more to your retirement fund if a good size correction occurs.
Rio dug a hole for itself (pun intended) with aluminum but BHP and Vale are great things for your retirement fund.
The situation in base metals is a tad different because (many) more competitors to BHP, Vale, Rio exist. They are dominant but not really oligarchs. Also the market is different. Iron and coal are predominantly contracts between producer and consumer so the monopolist/duopolist makes a killing (when demand is strong). Base metals are traded on markets and very often prices are driven by speculators (eg. now). It is still revenue of course but we saw the flip side earlier this year when prices for eg. zinc and nickel were driven down below cost (for many projects).
That's why BHPs desire to have iron ore traded in a similar way -- do away with the annual contracts -- seems strange. Pros: spot prices during the boom were roughly double contract prices. Cons: speculators driving prices down as well as up.
So it could come back to bite them. On the other hand if they are believers of a long term commodities super cycle then they'll suffer the short term over corrections for the windfall gains during the good periods.
On Oct 27 06:36 PM TraderMark wrote:
> Wilde > > If you are multi year - stay long. > > Each of us invest over a different time frame. BHP, Vale - they > are in sweet spots for a long time... global oligarchs of base metals! > > > I am just talking some short term swings, each article discussing > a stock has differnet time frames. I've had VALE or BHP as part of > my portfolio for almost the entire past 3 years... heck when I was > in VALE at first it was called CVRD. ;) > > Doesnt mean I dont trade around it a lot though... I am hoping for > at least 1 more day of dollar strength, a push down tomorrow and > I can get some back. If its part of a much larger correction I'll > head back to the sideline... if there is no correction at all after > today, then I missed out and will wait for the next opportunity. > That's a trader... the investor can just buy and check back in 5 > years. > > That works most of the time, except say in 2008 ;)
Getting out of BHP Billiton Before the Dollar Rallies [View article]
On Oct 27 06:25 PM Wildebeest wrote:
> Are we discussing where the BHP price is headed in the next few months > or where its earnings are headed? Price is disconnected from earnings > in the current market bubble. > > For BHP most of its costs are denominated in Australian dollars. > Its margins actually increase with a stronger dollar -- notwithstanding > the base metal price weakness that will accompany a weaker dollar.
...notwithstanding the base metal price weakness that will accompany a stronger dollar...
> Most of its iron ore is sold under annual contract (ditto Vale and > Rio) so the price it gets is not subject to the whims of speculators. > > > I think you could be right about a correction, and certainly the > market is overbought, but I'm multi-year long BHP and don't have > the inclination to try and pick a market reversal, especially one > that doesn't have much effect on earnings. A crash on the other hand > ...
Getting out of BHP Billiton Before the Dollar Rallies [View article]
Are we discussing where the BHP price is headed in the next few months or where its earnings are headed? Price is disconnected from earnings in the current market bubble.
For BHP most of its costs are denominated in Australian dollars. Its margins actually increase with a stronger dollar -- notwithstanding the base metal price weakness that will accompany a weaker dollar. Most of its iron ore is sold under annual contract (ditto Vale and Rio) so the price it gets is not subject to the whims of speculators.
I think you could be right about a correction, and certainly the market is overbought, but I'm multi-year long BHP and don't have the inclination to try and pick a market reversal, especially one that doesn't have much effect on earnings. A crash on the other hand ...
The China Dichotomy [View article]
One of these days you'll actually base this stuff on data rather than fantasy. Iron ore prices are 3 times cash cost -- I'm sure miners would be happy to "continue to be" "obvious victims" on that basis.
BHP Billiton: I'm Done With This Stock [View article]
Things to look for in the aussie press will be signs of the current government losing the next election, and/or signals that the government is open to negotiation about the rate, the benchmark return, and other aspects of the proposed tax. For example Fortescue scrapped projects because apparently financing costs aren't taken into account under the proposed tax regime. Therefore projects that have a major debt component look either less profitable or not profitable under the new scheme. Look for some momentum for changes to the proposed tax. The lobbying seems quite intensive.
My Trading Strategy for BHP Billiton [View article]
Some background: Ravensthorpe is a large nickel laterite project. Laterities have a (much) higher cash cost than sulfides and significantly higher capex. In the current environment they don't look attractive but ultimately, in years to come, most nickel will be laterites as sufide resources become depleted.
Minara is majority owned by Glencore who also (ultimately, stand corrected?) behind Xstrata.
Getting out of BHP Billiton Before the Dollar Rallies [View article]
Rio dug a hole for itself (pun intended) with aluminum but BHP and Vale are great things for your retirement fund.
The situation in base metals is a tad different because (many) more competitors to BHP, Vale, Rio exist. They are dominant but not really oligarchs. Also the market is different. Iron and coal are predominantly contracts between producer and consumer so the monopolist/duopolist makes a killing (when demand is strong). Base metals are traded on markets and very often prices are driven by speculators (eg. now). It is still revenue of course but we saw the flip side earlier this year when prices for eg. zinc and nickel were driven down below cost (for many projects).
That's why BHPs desire to have iron ore traded in a similar way -- do away with the annual contracts -- seems strange. Pros: spot prices during the boom were roughly double contract prices. Cons: speculators driving prices down as well as up.
So it could come back to bite them. On the other hand if they are believers of a long term commodities super cycle then they'll suffer the short term over corrections for the windfall gains during the good periods.
On Oct 27 06:36 PM TraderMark wrote:
> Wilde
>
> If you are multi year - stay long.
>
> Each of us invest over a different time frame. BHP, Vale - they
> are in sweet spots for a long time... global oligarchs of base metals!
>
>
> I am just talking some short term swings, each article discussing
> a stock has differnet time frames. I've had VALE or BHP as part of
> my portfolio for almost the entire past 3 years... heck when I was
> in VALE at first it was called CVRD. ;)
>
> Doesnt mean I dont trade around it a lot though... I am hoping for
> at least 1 more day of dollar strength, a push down tomorrow and
> I can get some back. If its part of a much larger correction I'll
> head back to the sideline... if there is no correction at all after
> today, then I missed out and will wait for the next opportunity.
> That's a trader... the investor can just buy and check back in 5
> years.
>
> That works most of the time, except say in 2008 ;)
Getting out of BHP Billiton Before the Dollar Rallies [View article]
On Oct 27 06:25 PM Wildebeest wrote:
> Are we discussing where the BHP price is headed in the next few months
> or where its earnings are headed? Price is disconnected from earnings
> in the current market bubble.
>
> For BHP most of its costs are denominated in Australian dollars.
> Its margins actually increase with a stronger dollar -- notwithstanding
> the base metal price weakness that will accompany a weaker dollar.
...notwithstanding the base metal price weakness that will accompany a stronger dollar...
> Most of its iron ore is sold under annual contract (ditto Vale and
> Rio) so the price it gets is not subject to the whims of speculators.
>
>
> I think you could be right about a correction, and certainly the
> market is overbought, but I'm multi-year long BHP and don't have
> the inclination to try and pick a market reversal, especially one
> that doesn't have much effect on earnings. A crash on the other hand
> ...
Getting out of BHP Billiton Before the Dollar Rallies [View article]
For BHP most of its costs are denominated in Australian dollars. Its margins actually increase with a stronger dollar -- notwithstanding the base metal price weakness that will accompany a weaker dollar. Most of its iron ore is sold under annual contract (ditto Vale and Rio) so the price it gets is not subject to the whims of speculators.
I think you could be right about a correction, and certainly the market is overbought, but I'm multi-year long BHP and don't have the inclination to try and pick a market reversal, especially one that doesn't have much effect on earnings. A crash on the other hand ...