- 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.
Sep. 22, 2014, 3:47 PM
- Cliffs Natural Resources (CLF -8.5%) plunges to 52-week lows as worries grow over the potential for an economic slowdown in China.
- Chinese steel production grew a mere 1% Y/Y in August, well off 2.6% YTD and 9%-10% growth recognized over the past few years; Wells Fargo's Sam Dubinsky views the data as negative for iron ore pricing, and thinks it means trouble for CLF, whose results could disappoint as the value of assets likely will diminish as pricing continues to fall.
- Also, a Bloomberg weekend report says coal demand in China may peak as soon as this year, which could further hurt coal miners such as CLF.
- Iron ore giants are lower: BHP -3.2%, RIO -2.7%, VALE -4.8%.
- Coal producers: ANR -9.7%, WLT -9.2%, ACI -7.7%, CLD -4.6%, BTU -4.4%, WLB -2.7%.
Sep. 16, 2014, 10:26 AM
- China says it will enact new laws banning the import and local sale of low-grade coal starting next year in a bid to curb its air pollution problem, with tough requirements in major coastal cities set to hit Australian miners such as BHP Billiton (BHP -0.4%), Rio Tinto (RIO -0.6%) and Glencore (OTCPK:GLCNF, OTCPK:GLNCY).
- China accounts for ~25% of Australia's coal exports, taking 54M metric tons of thermal coal and 30M metric tons of metallurgical coal from Australia in 2013; consultant Wood Mackenzie says all the thermal coal exceeded the new ash limit, while the met coal was below the limit.
- The most stringent requirements are for cities in the southern Pearl River Delta, the eastern Yangtze River Delta and three northern cities including Beijing, Tianjin and Hebei; the areas will be banned from burning coal that has more than 16% ash and 1% sulfur.
- Also, YZC -0.5%, KOL -0.4%.
Sep. 15, 2014, 12:42 PM
- News that China’s industrial production growth in August slipped to its lowest level since the 2008 global financial crisis could cause iron ore prices to extend their slide after reaching their lowest level in five years.
- Morgan Stanley says in a report that the price of iron ore could drop to as low as $70/ton from the current level of ~$82, but adds that prices may rebound towards $90/ton by year-end as China’s seasonal demand typically weakens before picking up again in Q4.
- Stanley’s forecast for a rally in the final quarter follows a similar prediction last week from Vale (VALE +0.8%), the world’s largest supplier, which said prices may be poised for a rebound to as much as $100/ton by year-end because of declining inventory at ports.
- Also: RIO +0.6%, BHP -0.8%.
Sep. 10, 2014, 5:15 PM
- Iron ore continues to slide, hitting fresh five-year lows on concerns about rising supply and slowing demand.
- Today’s decline - the price of benchmark ore for immediate delivery into China dropped another $1 to $82.20/metric ton - came as Goldman Sachs analysts wrote of "the end of the Iron Age," saying the long period of above trend in profitability enjoyed by the iron ore industry has been destroyed by the billions of dollars major producers have ploughed into new, low-cost capacity.
- The steelmaking material, which is critical to the profitability of several large mining groups including BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO) and Vale (NYSE:VALE), has dropped by nearly 40% this year, the worst performance among metals and bulk commodities.
- Goldman forecasts $80 iron ore next year and lowers its estimates for 2016 and 2017 to $79 and $78, respectively; Goldman says big producers will still be able to generate good returns at those prices but their ability to return capital to shareholders will be impaired.
Sep. 4, 2014, 11:26 AM
- BHP Billiton (NYSE:BHP) says it expects to join the bidding to develop Mexico’s deepwater oil fields when the country opens its offshore resources to foreign explorers next year.
- A move into Mexican waters would expand BHP’s interests in the Gulf of Mexico, which includes two platforms it operates and a stake in production from three others; BHP currently produces ~100K boe/day in the Gulf.
- BHP says it is initially interested in helping develop Mexico’s offshore assets rather than extending its shale expertise onshore; it was high bidder on 14 offshore blocks in a U.S. lease sale last month, including one area along the Mexico border.
Sep. 2, 2014, 11:48 AM
- Australia's conservative government earlier today repealed an unpopular tax on mining company profits, fulfilling a pledge made during last year's national election and handing Prime Minister Abbott a political victory while pleasing the country's big mining companies.
- Abbott believes the repeal, alongside the scrapping of the Labor Party's carbon tax in July, will convey to overseas investors that Australia would be more amenable to business interests.
- "This will be a positive step for investment and good for jobs in the mining sector," Rio Tinto (RIO -0.2%) CEO Sam Walsh says.
- The tax was complicated and focused on iron ore and coal miners of a certain profitability level but certain rules allowed miners to use prior capital spending as a tax deduction; BHP Billiton (BHP -0.5%) paid $200M in mining tax in FY 2013 and $24.8M in FY 2014, but it is believed all payments by Rio were refunded by the tax office.
Sep. 2, 2014, 7:56 AM
- BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO) look to open higher after Deutsche Bank analysts say an upside production surprise is in store at the Escondida copper mine in Chile, in which BHP has a 57.5% stake and Rio a 30% stake.
- A strategy to run three plants at the mine may be adopted by the companies in 2015, which could increase earnings at BHP and Rio Tinto by 2%-3% in the next couple of years, Deutsche Bank says.
- BHP +1.2%, RIO +1% premarket.
Aug. 29, 2014, 10:55 AM
- Iron ore prices are falling for a 10th straight day and have dropped 8.4% this month to five-year lows on concerns that global supplies are topping demand just as China’s recovery shows signs of faltering.
- Iron ore demand seems to be cooling in China, Commerzbank analysts say, adding that the usual seasonal uptick in Chinese demand likely will fail to materialize this year.
- Supply in the seaborne market also remains plentiful, where output is expected to exceed demand by 72M tons in 2014 and 175M tons in 2015, and prices will average $106/ton this year and $80 next year, Goldman Sachs estimates.
- Global miners are mostly lower following big losses yesterday: SID -2.6%, VALE -1.6%, CLF -1%, RIO -0.2%, BHP +0.2%.
Aug. 28, 2014, 2:25 PM
- Concerns about falling iron ore prices are sending global miners and steel companies sharply lower: CLF -5.8%, SID -5.7%, VALE -4.4%, RIO -3.9%, X -3.9%, BHP -2.5%, ANR -2.5%, MT -2.4%.
- There’s too much supply of iron ore and prices will continue to fall further, deepening a slump that has hurt profits at the biggest miners, according to the head of Austria’s largest steelmaker.
- Iron ore prices fell to their lowest level in five years today to $87.30/ton, the lowest since 2009; Voestalpine CEO Wolfgang Eder sees prices at $90-$100/ton for the rest of 2014 before settling at $80-$90 in the medium term.
Aug. 27, 2014, 6:58 PM
- Commodity trader and miner Glencore (OTCPK:GLCNF, OTCPK:GLNCY) and Chinese nickel producer Jinchuan Group are the front runners to buy BHP Billiton's (NYSE:BHP) Australian Nickel West division, Reuters reports.
- Estimates of Nickel West's value vary greatly, with some analysts and industry sources saying it's worth up to a $1B while others tag negative figures to the asset that they say is burning cash.
- Nickel West was not included in BHP's de-merger plans announced last week, but CEO Andrew Mackenzie said shortly thereafter that the company was in talks to sell all or part of the unit.
Aug. 20, 2014, 3:17 PM
- ConocoPhillips (COP +0.7%) beat out BP (BP -0.1%) to win one of the most contested tracts of today's western Gulf of Mexico lease sale, entering the event's highest apparent bid of $16.7M for Alaminos Canyon block 431.
- However, BP easily submitted the most bids (32) and was the apparent high bidder on 27, totaling $22.8M, while BHP was next with 14 bids comprising $21,8M; Chevron (NYSE:CVX) submitted just five bids but tallied the highest sum of high bids, totaling $25.8M.
- Shell (RDS.A, RDS.B) made just one offer in the sale, for territory near its Perdido developments; its $1.75M bid was enough to win Alaminos Canyon block 905, edging out the only other competitor, Stone Energy (NYSE:SGY).
Aug. 19, 2014, 6:29 PM
- BHP Billiton's (NYSE:BHP) move to spin off a raft of assets it deems non-core - businesses that employ ~25% of the company's current workforce but deliver less than 10% of its profits - creates a new midsize metals player that could become a prime takeover target for rivals.
- WSJ mentions Glencore (OTCPK:GLCNF, OTCPK:GLNCY) as a potential suitor, and Mick Davis, the former CEO of Xstrata who left the company when it merged with Glencore, is on the lookout for acquisitions for his new investment vehicle.
- On the other hand, the new BHP entity could suffer from dis-synergies after the spinoff, potentially facing higher costs in borrowing funds and procuring supplies.
Aug. 19, 2014, 2:38 PM
- BHP Billiton (BHP -3.4%) CEO Andrew MacKenzie said prospective partners for its proposed Jansen potash mine in Saskatchewan may be deterred by current market conditions for the crop nutrient.
- While BHP would like a partner to help develop the project, the CEO said after reporting earnings and a plan to spin off some assets that "we are not in a hurry, and we have to take account of how current market conditions have perhaps made some of the potential partners less interested than they might have been."
- Analysts say Jansen may cost $16B to develop; BHP has said it is cutting spending on Jansen by ~25%, but MacKenzie said today that construction of a mine shaft at the site is proceeding, albeit at a reduced pace.
Aug. 19, 2014, 7:59 AM
- Investors were expecting BHP's move to simplify the company to its "four pillars" of iron ore, copper, coal and petroleum, but they also expected a stock buyback in the neighborhood of $5B; they didn't get it, and the stock is -3.6% premarket.
- BHP had said it was targeting net debt of ~$25B before it would consider returning extra capital to shareholders, but even after reaching that target - net debt at June 30 was $25.8B - it decided it would only go ahead when it could return capital in "a consistent and predictable manner."
- The share price fall also reflects some concern with the proposed terms of the de-merger: Under the deal structure, shareholders would be given stock in the new spinoff even though it will be listed in Australia and South Africa, but many U.K. shareholders have investment mandates which do not allow them to own overseas companies, so many will be forced to dump their shares in the spinoff.
Aug. 19, 2014, 7:14 AM
- After announcing the creation of its new global metals and mining company, BHP Billiton (NYSE:BHP) says it is now in talks with potential buyers for all, or part, of its Nickel West division in Australia, which was excluded from the company's major restructuring.
- "We continue to talk to interested parties," says CEO Andrew Mackenzie. "This is a matter of commercial discussions with several potential buyers."
Aug. 19, 2014, 3:40 AM
- BHP Billiton (NYSE:BHP) has announced its plans to form a new global metals and mining company based around its aluminium, coal, manganese, nickel and silver assets. The new company will be listed on the Australian stock exchange, with a secondary listing in South Africa.
- "With a simpler portfolio, we are targeting sustainable, productivity-led gains of at least $3.5B per annum by the end of the 2017 financial year," says CEO Andrew Mackenzie.
- The demerger will leave BHP Billiton focused on its long-life iron ore, copper, coal, petroleum and potash basins.
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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