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BHP Billiton: When Iron Ore Miners Act Like They're OPEC
- Besides crude, iron ore prices have also plummeted to their multi-year lows.
- Weak economic numbers from China paint a grim picture for the future.
- However, BHP Billiton, one of the leading iron ore producers, is not slowing down.
- Is it worth investing in?
BHP Billiton: A High-Yielding Wait For The Iron Ore Turnaround
- Iron ore prices have been in free fall and dropped to below $70 recently.
- Stocks of the major iron ore miners trade at five-year lows.
- The bear market should present attractive opportunities for patient investors.
- BHP Billiton is one of the more defensive plays in the sector and offers an attractive dividend yield.
- BHP Billiton states it is ready to further increase iron ore production.
- The company states that if it did not increase iron ore production, other companies will do this.
- The constant increase of production volumes seems unstoppable, further pressuring iron ore prices and BHP Billiton's results.
- BHP Billiton is committed to the demerger, and simplifying its shareholder structure.
- The company expects to save an additional $4 billion by 2017 through productivity led gains.
- BHP Billiton is a best of breed company that should continue to increase dividends for the foreseeable future.
Rarely Discussed: The Double Margin Of Safety Dividend Approach
- A great way to achieve a double margin of safety is to insist on both a cheap valuation plus a high dividend yield.
- A good example of a company that meets both of these criteria is BHP Billiton, trading at only 10x-11x profits and offering a well-supported 4.6% dividend yield.
- The inevitability of P/E expansion, plus the accumulation of dividends, will provide investors two layers of safety in the coming years.
BHP Billiton Is Giving Long-Term Dividend Growth Investors A Great Entry Point
- BHP Billiton is one of the most interesting dividend growth names in the market right now.
- It is sporting the highest dividend yield in many years.
- Near term concerns have dragged the price down to very cheap levels.
- Long-term investors buying now will do very well particularly if they choose to reinvest their dividends.
- Recently, the Australian dollar touched a four-year low of 0.8553 against the U.S. dollar.
- The Reserve Bank of Australia expects the Australian dollar to depreciate further.
- BHP Billiton's earnings are sensitive to the strength of the Australian dollar against the U.S. dollar.
- The company has great financial efficiency ratios and a great dividend.
- The projected earnings for next year are less than what the company earned in the trailing twelve months.
- The stock shows about the same risk as reward and I'm going to take a pass on purchasing the stock for the IRA.
- BHP Billiton's valuation has suffered due to associations with the falling prices in iron ore and coal.
- BHP Billiton has undertaken cost cutting initiatives, and is spinning out lower growth divisions into a new listed entity - 'New Co.'
- Valuation on cash flows is $160-180 billion vs. market capitalization of $150 billion.
BHP Billiton: Lower Iron Ore And Crude Oil Prices Will Impact Earnings
- Iron ore prices are declining.
- Crude oil price are declining.
- BHP Billiton's net profit after tax is sensitive to iron ore and crude oil prices.
- Tugboat officers at Port Hedland approved a strike action for the second time this year.
- If the officers strike, then it will affect exports of BHP Billiton and Fortescue Metals Group.
- A recent amendment to the Fair Work Act will prevent tugboat officers from threatening iron ore miners to resort to strikes in the future.
- BHP Billiton signs MOU with Mexico's Pemex for information exchange.
- This could lead to a formal working partnership for offshore oil development.
- The resource rich Perdido oil province would be very attractive for BHP to work in.
- Iron ore prices have overshot to the downside, and are due for a rebound.
- Any rebound in commodity prices will deliver a meaningful impact to the bottom line.
- BHP Billiton's spin-off of assets will boost shareholder value in the long run.
- BHP Billiton has lower exposure to iron ore compared to its peers. The recent fall in iron ore prices is not a worry.
- Mexico has opened its oil & gas resources for foreign companies. BHP Billiton is interested in developing the country's deep water resources, which will enhance its petroleum portfolio.
- Copper output from Escondida mine may increase 220,462 tons (200,000 tonnes) per annum from fiscal year 2018.
- The recent fall is a buying opportunity for long term buyers.
- BHP Billiton recently announced a spin-off of a selection of its non-core assets.
- The company has, however, excluded Nickel West from the planned spin-off.
- BHP Billiton plans to sell Nickel West as a standalone company.
- While some analysts and investors have questioned the company’s decision to not include Nickel West in the spin-off, the company has taken the right decision.
These 3 Australian Iron Ore Miners Stand Up Best To Weakening Spot Prices
- Iron ore spot prices are falling to levels lower than previous 2012 low.
- Increased production volumes are generating even higher earnings despite depressed commodity price.
- The winners are those companies that meet classic cyclical investing standards.
Mon, Dec. 15, 5:57 PM
- BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO) are amassing vast copper holdings in a push to capture a greater chunk of the $140B world market, apparently aiming to squeeze out high-cost producers just as they did in the global iron ore business, Reuters reports.
- Separately and in joint ventures, Rio and BHP intend to mine millions of additional tons of copper, despite seeing an oversupplied market for the next few years.
- While Rio and BHP likely would not hold the same degree of dominance over copper that they do in iron ore - Codelco, Glencore (OTCPK:GLCNF, OTCPK:GLNCY) and Freeport McMoran (NYSE:FCX) will remain bigger producers for the foreseeable future - their influence on global supply would be enhanced.
- The drive in copper also could give BHP and Rio an advantage over rival Vale (NYSE:VALE), whose exposure to copper is less than half that of BHP and Rio.
Mon, Dec. 15, 2:58 PM
- BHP Billiton (BHP -2.6%) is downgraded to Underperform from Sector Perform at RBC Capital, which says BHP's cash flow metrics look weaker than its peers over the next two years.
- The firm questions the timing of BHP's South32 spinoff of its aluminum, nickel, silver and coal divisions amidst potential structural change in oil and iron ore, seeing it as a case of "good idea, bad timing."
- BHP needs $16B-$20B in operating cash flow just to cover its capex and dividend requirements, which would be problematic if commodity prices continue to slide, RBC says.
Mon, Dec. 15, 11:42 AM
- Unionized workers at the Antamina copper and zinc mine in Peru end a strike that began last Wednesday over demands for better labor conditions and a greater profit share, and will restart work today, according to the mine owners.
- The mine is controlled by BHP Billiton (NYSE:BHP) and Glencore Xstrata (OTCPK:GLCNF, OTCPK:GLNCY), which each own 33.75% stakes, while Teck Resources (NYSE:TCK) has a 22.5% interest and Mitsubishi owns 10%.
- Antamina produced about one-third of Peru’s copper production in 2013; the country is the world’s third-biggest producer of copper.
Mon, Dec. 15, 1:55 AM
- Rio Tinto (NYSE:RIO) and BHP Billiton (NYSE:BHP) are looking to replicate their iron ore strategy in the copper business, squeezing out high-cost producers by injecting more of the red metal into an oversupplied market.
- Separately and in joint ventures, Rio and BHP intend to mine millions of additional tonnes of copper, confident in the coming years that copper will be in short supply.
- Copper producers: OTCPK:GLNCY, FCX, TCK, SCCO
- ETFs: JJC, COPX, CU, CPER, CUPM
Sat, Dec. 13, 8:25 AM
- BHP Billiton (NYSE:BHP) iron ore chief Jimmy Wilson says the days of $100/metric ton iron ore likely are over amid a supply glut and weak Chinese demand.
- Iron ore fetched ~$135/metric ton a year ago, but it is now below $70 as output from global giants such as BHP, Rio Tinto (NYSE:RIO) and Vale (NYSE:VALE) increases, hurting higher-cost producers.
- "It's hard to see the sort of significant bump that we've seen come from China happen again," Wilson says.
- BHP general manager for iron ore marketing Alan Chirgwin says the company expects China's growth in consumption of steel - in which iron ore is a crucial component - to slow to 0.5%-1.5% next year.
Thu, Dec. 11, 12:16 PM
- BHP Billiton (BHP -0.2%) says it will seek to raise the profile of fertilizers among its suite of products as it hunts for resources to tap longer-term growth in China.
- “Potash can be our fifth pillar” as an area of strategic growth in China, executive Mike Henry says, adding to BHP's four key markets of iron ore, oil and natural gas, copper and coal.
- Henry says BHP continues to evaluate partners for its giant Jansen potash development in western Canada, including potential Chinese candidates, but offers few clues on the project's development schedule.
Tue, Dec. 9, 8:29 AM
- Mining companies sink in premarket trading as J.P. Morgan lowers its iron ore outlook through 2017, predicting prices will extend declines as growth in low-cost supply from the world’s largest producers outstrips demand.
- Iron ore will average $67/metric ton next year, 24% less than previously forecast, $65 in 2016, down 23%, and $69/ton in 2017, down 16%, the firm says; iron ore has averaged $98.82/ton YTD but recently slumped to a five-year low $68.49.
- "The only way the oversupply can be averted is if the low-cost producers cut back on their growth targets," which is unlikely, JPM says, as "feedback from recent site visits to the Pilbara suggests there is currently no consideration for slowing capacity growth from either Rio Tinto or BHP Billiton."
- BHP -2.1%, RIO -1.2%, VALE -1.2% premarket.
Tue, Dec. 9, 4:58 AM
- BHP Billiton (NYSE:BHP) has sold its first cargo of processed condensate from the U.S., testing the waters of exporting the minimally processed oil without a permit.
- The producer sold a 650K-barrel cargo to U.S. firm Koch for delivery during the first half of January at a premium of about $2 a barrel to WTI.
- Previously: BHP to export condensate without permit (Nov. 05 2014)
- BHP -2.2% premarket
Mon, Dec. 8, 3:51 AM
- BHP Billiton (NYSE:BHP) will call the planned spin-off of its aluminium, nickel, silver and coal divisions South32 - based on the thirty-second parallel south line of latitude which links its two regional centers in Australia and South Africa.
- Documentation of the demerger will likely be released in March 2015, with a shareholder vote taking place in May.
- BHP's new $16B entity will have a primary listing on the Australian Securities Exchange, with additional listings in London and Johannesburg.
Fri, Dec. 5, 5:38 PM
- The Eagle Ford shale formation in south Texas produced its billionth barrel of oil some time last month, according to analysts at research firm Wood Mackenzie.
- Eagle Ford now accounts for 16% of total U.S. oil production, and the firm forecasts E&P spending of $30.8B in the region next year, ~22% of the total $139.3B expected in U.S. onshore spending.
- Eagle Ford is widely considered the most profitable U.S. shale field, and many analysts speculate the break-even price for production to remain profitable is ~$50/bbl in much of the play.
- Top Eagle Ford producers include EOG, CHK, APC, MRO, BHP, APC, APA, BP, COG, CRZO, CWEI, CRK, COP, XOM, FST, GDP, HES, MTDR, MUR, NFX, PVA, PXD, ROSE, RDS.A, RDS.B, SN, SM, STO, SFY, TLM, ZAZA
Thu, Dec. 4, 2:16 PM
- BHP Billiton (BHP -0.6%) is reiterated with a Market Perform rating but a reduced target price of ~$63 vs. $73 earlier at Bernstein, which calls the mining giant a “colossus with feet of clay."
- Despite BHP's impressive portfolio of high quality assets, "this is not enough [for] a premium rating to a company that must place a premium rating on [its] products... something that BHP appears to be unwilling to do, preferring a strategy of volume over price.
- Bernstein also does not believe BHP can afford to increase its dividend except through an increase in gearing, which makes it different from Australian peer Rio Tinto (RIO -2.7%) - neverthless, RIO is downgraded to Underperform from Buy at BofA Merrill Lynch on lower iron ore prices.
- Vale (VALE -1.5%) also sees its stock price target lowered, to $10 from $12 at RBC, amid the subdued outlook for iron ore and near-term funding challenges.
Mon, Dec. 1, 11:38 AM
- BHP Billiton (BHP -1.5%) iron ore president Jimmy Wilson said this weekend that plunging iron ore prices had been anticipated given their forecasts that supply growth would exceed the growth in demand, and signals there will be no slowdown in the drive to boost production by global iron ore producers.
- “Even the iron ore price where it is today can induce more volume,” Wilson told Australia’s Nine Network, and "if that volume doesn’t come from our business, it’s going to come from other businesses around the world and other countries around the world.”
- Bernstein analyst Paul Gait recently said: "If BHP do not value the products that they mine but are quite happy to dump them on the market whatever the price, then it is hard to see why anyone should value the company associated with such activity."
- Also: RIO -0.2%, VALE -3.4%, CLF -7.6%.
Tue, Nov. 25, 8:58 AM
- Iron ore trades below $70 for the first time in five years, as rising low-cost supplies by the world’s top miners widen a global glut amid slowing demand from China.
- Ore with 62% content delivered to Qingdao fell 1.2% to $69.58/dry metric ton, the lowest since June 2009, and has dropped 48% YTD.
- “The biggest problem is on the supply side as majors like BHP and Rio are pushing huge volumes into the lackluster demand environment," says Bernstein's Paul Gait, who adds that $65 "feels like a floor."
- BHP -1.8%, VALE -0.6%, RIO -0.4% premarket.
Mon, Nov. 24, 5:59 PM
- The flooding of Uralkali's Russian potash mine is confirmation for BHP Billiton (NYSE:BHP) CEO Andrew Mackenzie of the wisdom of his company’s planned move into the industry.
- No major new mines have begun production since the 1970s, and the halt of operations at the Solikamsk-2 mine - which accounts for 3% of the world's total supply - is a sign of the vulnerability of supply as the need to feed a growing global population spurs demand, the CEO says.
- BHP hopes to build its Jansen project in Saskatchewan sometime in the next decade, though Mackenzie is cautious about giving an exact timeline.
Mon, Nov. 24, 2:58 PM
- BHP Billiton's (BHP -2.2%) commitment to target $4B/year in cost cuts and other productivity gains in its core portfolio is a clarion call to the big mining contractors that times are about to get tougher.
- Despite the spending cuts and productivity gains, analysts think it will not be enough to deliver a round of share buybacks or special dividends in February.
- "If you look at the iron ore price, no one would reasonably be expecting any of the majors would be in a strong position to return capital above the base dividends. In this market people are questioning the ability to in some cases even pay that base dividend," says CLSA's David Radclyffe.
- Iron ore prices currently are ~$70/metric ton, while prices hit a high of $180 less than three years ago; coal, oil and other commodities are also taking a bath, crunching the profit margins of the miners.
Mon, Nov. 24, 7:53 AM| Comment!
BHP vs. ETF Alternatives
BHP Billiton Ltd is a natural resources company. The Company is engaged in the producing commodities, including iron ore, metallurgical and energy coal, conventional and unconventional oil and gas, copper, aluminium, manganese, uranium, nickel and silver.
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