- The company is reluctant to cut output in spite of the fall in iron ore prices.
- Fall in copper prices will reduce the benefits of existing projects.
- Capex cut in petroleum division likely.
- Dividend uptick and share buyback appears unlikely.
Introduction To BHP Billiton's Copper Production
- BHP has delivered significant cost efficiencies and is projecting a substantial increase in costs at constant exchange rates.
- If the company is paying their costs in foreign currencies but selling the finished product at prices denominated in USD, the exchange rates may be favorable.
- BHP has made fairly bullish predictions on long term copper supply and demand imbalances.
- I would be cautious about accepting the predictions that are based on current operating mines and committed new projects.
- The presentation of copper as a percentage of production is based on 2010, when average copper prices were higher.
- BHP is trading at 5-year lows to match low iron ore prices encouraged by increasing production by the low-cost, high-grade Australian producers.
- Those producers are poised to gain advantage during 2015 as high-cost, low-grade miners are forced out of the market.
- Significant upswing expected throughout 2015 as demand from China picks up.
- I’ll be taking a look at BHP Billiton and bringing readers through the investor presentation with me.
- The demerger should simplify operations and gives analysts and shareholders a less geographically diverse area to monitor.
- BHP is focused on cost reduction, but doing it through increased volume is increasing rivalry within the industry.
- If BHP is willing to take the pain in commodity prices, they can drive competitors out of business and acquire assets at discounted prices.
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.
Is Mining For Dividends With BHP Billiton A Good Idea?
- 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.
Fri, Jan. 23, 11:18 AM
- Iron ore miners are broadly lower after Goldman Sachs becomes the latest global bank to deliver a dismal outlook for the steel-making ingredient, forecasting an average price of $66/metric ton this year from an earlier estimate of $80.
- Goldman is at least the fifth bank this month to lower estimates, citing rising seaborne supplies and weaker demand growth from China; just last week, Citigroup cut its iron ore forecast to $58 in 2015, down from its earlier $65, and UBS lowered its target to $66 from $85.
- Low-cost expansions likely will continue as major producers are still mining iron ore at a profit, which would expand the global seaborne surplus from 47M tons this year to 260M tons by 2018, Goldman says.
- Iron ore miners: VALE -8%, BHP -3%, RIO -3.6%, CLF -7.6%.
- Copper miners: FCX -2.6%, SCCO -2.4%, TCK -2.6%.
- Steel companies: X -6.3%, MT -7.1%, AKS -3.2%, NUE -1.2%, STLD -3%, CMC -3.8%, TMST -2.4%.
- Earlier: Goldman gives in on mined commodities
Wed, Jan. 21, 12:29 PM
- BHP Billiton's (NYSE:BHP) planned South32 spinoff may appeal to Glencore (OTCPK:GLCNF, OTCPK:GLNCY), Bloomberg speculates, because the newly formed company is taking shape near the bottom of the commodity cycle and it produces many of the same metals, including silver, manganese, aluminum.
- Glencore CEO Ivan Glasenberg is looking for undervalued acquisition targets, and his record as a relentless acquirer of assets makes him a potential buyer of South32, according to the report.
- Glencore’s market value has fallen more than 25% amid falling prices for metals and minerals, curbing Glasenberg’s prospects of a renewed deal with Rio Tinto, which some analysts say may make the cheaper South32 a more realistic option.
Tue, Jan. 20, 7:23 PM
- BHP Billiton (NYSE:BHP) says it will shut down 40% of its U.S. shale oil rigs by the end of its fiscal year.
- BHP plans to pare the number of rigs it is using in the U.S. to 16 from 26, focusing on drilling in the liquids-rich Black Hawk basin while cutting back in the Permian and Hawkville acreage; it says it will provide more details on its revised shale drilling budget, originally set at $4B for this financial year, next month.
- Also, BHP says its iron ore output climbed 16% to 56.35M metric tons in the December quarter, and reaffirmed it would boost annual output by 11% in the fiscal year to June 2015 to 225M metric tons; petroleum production for the quarter rose 10% Y/Y to 63.6M boe.
- Earlier: BHP seen slashing U.S. shale spending to shore up dividend promise
Tue, Jan. 20, 3:39 PM
- BHP Billiton (BHP -0.9%), which has cut capital spending for the past two years, may need to cut its planned $4B spending this year on U.S. shale wells and book writedowns on its shale assets to have enough cash to meet a promise not to reduce its dividend, analysts and investors say.
- U.S. onshore drilling is the biggest single item in BHP's planned $14.2B capital budget and would be the easiest target, but longer-dated projects such as the Jansen potash project in Canada and the Olympic Dam copper expansion study in Australia also could be vulnerable
- "There's severe pressure for them to cut capex on the onshore business. Once they come clean with that, the market will be in a better position to assess its value," says CIMB analyst Michael Evans, who thinks BHP could its shale spending in half to $2B.
- The spending cuts could come as soon as Wednesday, when BHP will release its December quarter operational review.
Wed, Jan. 14, 12:39 PM
- Citi cuts price targets for iron ore to $58 for 2015 and $62 for 2016, down from its prior estimates of $65 for both years, and lowers its outlook for thermal and met coal.
- Citi warns its downwardly revised forecast means it now expects earnings for major mining companies will fall by 9%-21% for 2015 and by 3%-16% in 2016.
- Rio Tinto (RIO -2.5%) is the exception, as Citi sees earnings rising 7.1% this year and 10.6% next year due to the company’s greater exposure to the weaker Australian dollar.
- The firm cuts its price target for Glencore (OTCPK:GLCNF -7.2%) by 8% to £3.60 from £3.90 and sees earnings falling 21% and 16% respectively in 2015 and 2016.
- Citi says it is still bullish on the sector, but warns that metals and mining companies will only slowly grind higher over the next few years.
- Also: BHP -4.5%, VALE -5%, FCX -12%, SCCO -4.9%, TCK -9.7%, CLF -4.4%, CENX -9.1%, MT -4.2%, X -4.9%, NUE -3.4%, STLD -2.6%, BTU -9.8%, ANR -8.8%, ACI -8.9%.
Wed, Jan. 14, 10:28 AM
- Freeport McMoRan (FCX -10.8%) sinks to a 52-week low as copper prices fall 4.5% to collapse to 2009 levels, though it is off overnight lows after prices were down nearly 9% at one point in London.
- Other big global miners also are sharply lower: SCCO -7.3%, RIO -2.5%, BHP -4.4%, VALE -3.8%, CLF -5.8%.
- Concerns over a supply glut and slowing consumption in China have weighed on copper prices in recent months; copper is often seen as an omen for the global economy because it is used in a wide array of construction and manufacturing activities, so today's precipitous drop explains much of the weakness in global equity markets.
- The iPath Dow Jones UBS Copper Subindex Total Return ETN (NYSEARCA:JJC) is trading so heavily that nearly 60% of the average full-day volume traded in the first 10 minutes this morning.
- ETFs: CPER, CUPM, DBB, BOM, RJZ, BOS, BDD, JJM, RGRI, UBM, BDG, USMI, HEVY
Wed, Jan. 14, 7:57 AM
- Mining stocks look headed for sizable losses, as copper prices sink to five-and-a-half year lows and the World Bank lowers its forecast for global economic growth.
- Glencore (OTCPK:GLCNF, OTCPK:GLNCY) -11.5% in London trading, Antofagasta (OTC:ANFGF) -7% in London, Anglo American (OTCPK:AAUKF, OTCPK:AAUKY) -9.5% in London, Vedanta (OTCPK:VDNRF) -18% in London, Rio Tinto (NYSE:RIO) -4.3% premarket in the U.S., VALE -2.9%, FCX -5.1%, CLF -2.6%.
- BHP Billiton (NYSE:BHP) -7.5% in London and -5.5% U.S. premarket after S&P Capital IQ downgraded shares to Hold from Buy, expecting "weaker commodity prices to increasingly impact on group profits as hedges expire and see currency headwinds from a stronger [U.S. dollar]."
- ETFs: XLB, XME, SLX, COPX, VAW, UYM, CU, IYM, HAP, IRV, MXI, SMN, GNR, GUNR, PICK, MATL, FXZ, PYZ, CRBQ, RTM, CCXE, FMAT, GRES, SBM
Tue, Jan. 13, 6:55 PM
- MarketWatch's Philip Van Doorn spotlights U.S. drillers and oilfield services companies with efficiency advantages that could help them weather the bear market in crude oil.
- A key step in the fracking process to extract oil from shale is pumping proppant into a well to open cracks from which oil and gas can flow, but the cost of proppant varies widely; companies with the lowest proppant cost will have the best shot of turning a profit from shale extraction operations during a prolonged period of low oil prices, Van Doorn writes.
- The Rockies formation is considered the most efficient, with a proppant cost of $8.88/bbl during the first 90 days of production; 54% of WPX Energy’s (NYSE:WPX) non-conventional oil wells are in the Rockies.
- 83% of Noble Energy’s (NYSE:NBL) non-conventional wells are located in the Niobrara formation, which has a low proppant cost of $15.41/bbl.
- Overall, Hess (NYSE:HES) is calculated to boast the best proppant efficiency, with an average cost of $3.58/bbl for the first 90 days of production, followed by BHP Billiton (NYSE:BHP) with an average cost or $9.14, and Whiting Petroleum (NYSE:WLL) with an average proppant cost of $11.08/bbl.
Mon, Jan. 12, 2:56 PM
- Apache (NYSE:APA) appears to have gone cold on the $3B sale of its remaining West Australian gas and oil assets as oil prices plunge and potential buyers struggle, The Australian reports.
- Sales talks with potential buyers are said to have been held up in the wake of sliding prices and high Western Australia gas prices amid falling international oil prices and U.S. gas prices that could make a deal look less appealing.
- At the same time, last month’s $2.75B sale of its Wheatstone LNG stake in Australia and in the yet-to-be approved Kitimat venture in British Columbia may have eased the pressure from activist shareholders who were pushing APA to focus on the U.S.
- Among potential buyers, Santos (OTCPK:STOSF) is APA’s partner in some Australian fields but is now in conservation mode following the oil price slide, Origin Energy (OTC:OGFGF) is facing a downgrade of its credit rating if oil prices fall and will not want to weaken its balance sheet, and even BHP - APA’s partner in the Macedon gas plant - is facing challenges maintaining its A-grade credit rating.
Dec. 31, 2014, 7:35 AM
- "The major factor that undercut ore prices in 2014 was the Australian-led supply surge," says Morgan Stanley's Tom Price. "In terms of price downside, the worst is probably over."
- A late-year rally has prices down "only" about 50% for the year.
- The bear market occurred as low-cost supplies from the like of BHP Billiton (BHP, BBL) and Rio Tinto (NYSE:RIO) came online just as demand from China began to cool, and the market shifted to surplus in the middle of the year. Goldman Sachs sees the excess widening to roughly 300M tons by 2017 as past investments from the miners continue to lift supplies.
- Behind Morgan Stanley's quasi-bullishness is the idea of the price decline pushing high-cost producers to the sideline, a thought echoed by VALE CEO Murilo Ferreira last month.
Dec. 31, 2014, 2:48 AM
- The U.S. Bureau of Industry and Security said it will allow companies to sell oil condensate that has been processed through a basic distillation tower, giving them a green light for export without violating a four decade old ban.
- The agency also published a list of answers to common questions about crude exports, providing guidelines for the first time on an area that has been blanketed in confusion, although many are saying there is still a lot of room for interpretation.
- Previously: U.S. gives silent okay to condensate exports (Dec. 30 2014)
- Related tickers: PXD, EPD, BHP, PSX, KMI, ETP, RGP, CVX
Dec. 30, 2014, 8:13 AM
- The U.S. Commerce Department is telling some oil companies that they should consider exporting condensate without formal permission, Reuters reports.
- Officials familiar with the law said the agency's discussions did not represent a change in policy since self-classification is allowed under U.S. export controls.
- Despite the policy, Pioneer Natural Resources (NYSE:PXD) and Enterprise Products Partners (NYSE:EPD) obtained explicit permission from the agency to export in June, while last month BHP Billiton (NYSE:BHP) became the first company to announce that it would export condensate without authorization from the government.
- Related tickers: PSX, KMI, ETP, RGP, CVX
Dec. 22, 2014, 6:15 PM
- Global iron ore producers fell today after Australia's Department of Industry slashed its iron ore price estimate by a third due to surging output, which has outpaced Chinese demand and growth, creating a surplus.
- Iron ore prices will average $63/metric ton, vs. $94/ton forecast in September and this year's expected average of ~$88, according to the government's latest quarterly report.
- Ore with 62% content delivered to Qingdao, China, fell 1.8% to $67.90/metric ton, the lowest price since June 2009 and extending this year’s rout to 50%.
- Not everyone is quite so gloomy: Prices appear oversold and there’s potential for a relief rally in H2 2015, Australia & New Zealand Banking says, forecast iron ore to average $80/ton, noting that any recovery will be driven by supply cuts, including high-cost mines in China, where the industry is losing at current prices.
- During today's trading: BHP -2%, RIO -1.8%, VALE -0.6%, CLF -7.9%.
Dec. 22, 2014, 10:45 AM
- Natural gas prices fall 9.5% to near two-year lows at $3.133/mmBtu, in the biggest one-day percentage loss since February and the lowest intraday price since January 2013, on mild weather forecasts and inventory that is above year-ago levels.
- Prices are now down more than 15% in three straight losing sessions and are 30% lower than the six-month high closing price of $4.489/mmBtu it hit just a month ago.
- Weather has been unseasonably warm for December, limiting demand for home heating and allowing relatively low stockpiles to catch up to where they were a year ago and encouraging traders to sell based on the belief that supply is relatively healthy.
- Gas producers are among the biggest early decliners: XOM -1.1%, CHK -7.3%, APC -2.6%, SWN -6%, DVN -2.2%, COP -2.3%, BP -1.5%, COG -4%, BHP -1.9%, CVX -1.3%, ECA -5.1%, EQT -4.3%, RDS.A -1.7%, UPL -12%, WPX -6.9%, EOG -1%, OXY -1.1%, RRC -6.1%, APA -2.3%, AR -3.2%, CNX -3%, QEP -4.8%, LINE -4.9%, NBL -1.6%, SM -2.6%, XEC -4.2%, PXD -2.9%, NFX -5.1%.
- ETFs: UNG, DGAZ, UGAZ, BOIL, GAZ, FCG, GASL, KOLD, UNL, NAGS, DCNG
Dec. 15, 2014, 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.
Dec. 15, 2014, 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.
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