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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.
Fri, Jun. 27, 2:39 PM
- Glencore (GLCNF, GLNCY) has told the government of Guinea that it is interested in rights to develop the northern concession of the Simandou project, one of the world's most sought-after iron ore deposits, WSJ reports.
- BHP Billiton (BHP) and Arcelor Mittal (MT) also reportedly have notified Guinea that they could be interested in taking part in a tender.
- Glencore has little exposure to iron ore, but has said it isn't seeking out the kind of long-term investment required by Simandou, which would require billions of dollars in investment before making a profit.
- Earlier this year, the government revoked the license previously held by Vale (VALE) and BSG Resources, alleging BSG obtained the rights through corruption; Simandou's southern concession is being developed by a consortium led by Rio Tinto (RIO).
Fri, Jun. 27, 12:52 PM
- Rio Tinto (RIO) and Russian fertilizer producer Acron are moving ahead with development of the Albany potash prospect in Saskatchewan, Acron says.
- In its first disclosure of the size of the discovery, Acron says the project area contains 1.4B metric tons of inferred resources within the mining caverns at an average grade of 31% potassium chloride, with 329M metric tons recoverable.
- Rio’s rival BHP has invested in the larger Jansen potash project in Canada, but has pushed back production until at least 2020, looking for the right time to enter the currently oversupplied market.
Wed, Jun. 25, 7:49 AM
- BHP Billiton (BHP) lets an exclusivity agreement lapse that would have given it the right to develop a potash export facility for its Canadian Jansen project at Washington state's Port of Vancouver.
- BHP says it decided not to renew the agreement as it evaluates how quickly it needs to bring the Jansen project into production, and that it can actively investigate and assess alternative rail and port options in Canada and the U.S.
- BHP has been looking for a partner to help shoulder the cost of what could become one of the world's biggest potash mines.
Tue, Jun. 24, 9:12 AM
- BHP Billiton (BHP) is cutting 500 jobs at its flagship Australian iron ore division as part of an ongoing review of the business, the Herald Sun reports; a report from the Australian Broadcasting Co. says as many as 3K jobs could be targeted.
- The cuts come as iron ore spot prices have plunged more than 30% YTD.
- "Iron ore miners such as BHP are in the early stages of going through what the coal miners have been experiencing," says a mining analyst for MineLife in Sydney. "In effect, they are being asked to make do with less."
- BHP -0.8% premarket.
Mon, Jun. 23, 2:16 PM
- Vale (VALE +2.2%) is higher after China reported better than expected June flash manufacturing PMI data, but while iron ore prices may incrementally firm up from Chinese demand, Credit Suisse cuts its iron ore price outlook as it does not foresee any real strength ahead without the kind of broad based stimulus package the current Chinese administration has disavowed.
- The firm now forecasts iron ore to average only $90/ton in H2 of this year, and expects prices to average $89/ton next year and $87/ton in 2016.
- Plus, the big three Australian miners - Rio Tinto (RIO), BHP and Fortescue Metals (FSUMF) - are racing to expand production this year before Vale begins to contribute more meaningfully in 2015, meaning plenty of overseas supply should be expected.
Thu, Jun. 12, 8:28 AM
- Morgan Stanley cuts its iron ore price estimate for this year and foresees a further drop in 2015, as a seaborne surplus grows faster than expected and the level of cost support at Chinese producers declines.
- Prices are expected to average $105/ton this year vs. $118 forecast in May and $135 in 2013, and average ~$90/ton in 2015, 21% below an earlier estimate.
- Iron ore has dropped below $92 for the first time since 2012 as mining companies boost output, betting that rising exports to China would more than offset lower prices.
- The firm downgrades Vale to Equal Weight from Overweight with a $15.20 price target.
- RIO -2.9%, CLF -2.8%, VALE -1.3%, BHP -1.2%, MT -1.2% premarket.
Wed, Jun. 11, 10:37 AM
- BHP Billiton (BHP -0.3%) may cut production at its Goonyella Riverside coal mine in eastern Australia after announcing the termination of a mining service contract to cut costs amid a sharp drop in coal prices.
- Two years remained on the contract for pre-strip work and were worth ~A$360M; the termination, effective Sept. 9, will result in 427 contractors leaving the site.
- Goonyella Riverside produced 12.4M metric tons of met coal in the year to June 2013, and BHP says output in the current FY will be unaffected by the contract termination.
Tue, Jun. 10, 2:09 PM
- BHP Billiton (BHP -0.3%) is considering a sale of almost all of the businesses Billiton brought to the merger with BHP 13 years ago, in an attempt to refocus the company on BHP’s core operations from before the 2001 tie-up, FT reports.
- New CEO Andrew Mackenzie is narrowing the company's focus to a set of long-life mines and major oil and gas fields in a few locations; by contrast, former Billiton assets such as African manganese mines and aluminum production facilities contribute only ~10% to overall earnings.
- "Merging with Billiton has not been a bad deal," says RBC analyst Tim Huff. "It just happens that some of the assets they bought are now those that they do not view as having potential for the next two to three decades.”
Tue, Jun. 10, 12:49 PM
- Iron ore prices have plunged by a third this year, hovering at ~$94/ton this week, thanks to the rapid growth in supply from Australia and other exporting nations, but Citi believes the supply surge is peaking in Q2 and that H2 of this year should see a leveling off in supply.
- While UBS is cautious, Citi says iron ore can find price support at $90/ton and that it sees prices back to $100/ton in Q4; if iron ore were trading at $90, China - a high-cost market - would have to cut 25% of its production, and other producers would have to curtail as well, Citi says.
- Iron ore miners are lower today: VALE -0.6%, RIO -1.1%, BHP -0.5%, CLF -0.7%.
Tue, Jun. 10, 8:46 AM
- Engineers at Australia’s Port Hedland have joined tugboat officers and deckhands in approving strikes, risking disruptions at the world’s biggest bulk export terminal.
- The Australian Institute of Marine and Power Engineers approves stoppages ranging from 4 hours to 48 hours against Teekay Shipping, which is contracted by BHP Billiton (BHP) to run tugboat operations in Port Hedland.
- BHP has warned that strikes by workers over annual leave and wages may cost suppliers A$100M/day in lost iron ore exports.
Mon, Jun. 9, 8:41 AM
- BHP Billiton (BHP) has cut another 170 jobs at its key Mt. Whaleback iron ore operation in the Pilbara region of Western Australia state, on top of 100 layoffs last week tied to iron ore production.
- Spot iron ore prices are hovering just above two-year lows, eating into profits at BHP and rivals such as Rio Tinto (RIO) and Fortescue Metals (FSUMF) and prompting the mines closures, asset sales and job losses.
- BHP is Australia's no. 2 exporter of iron ore, which accounts for a majority of its earnings.
Thu, Jun. 5, 3:59 PM
- Joy Global (JOY +6.7%) powers to its highs of the day after reporting FQ2 earnings that reflected the global mining equipment slowdown but topped low expectations and backing its FY 2014 guidance.
- JOY said in its earnings conference call that its deal with Mining Technologies will add to its underground hard rock mining growth prospects.
- Joy also sees growth in the oil sands market, particularly in Canada, which it said represents the largest unconventional source of oil production over the next 20 years.
- Global mining peers also are higher: CAT +2.6%, VALE +1%, BHP +0.7%, RIO +0.7%.
Thu, Jun. 5, 12:17 PM
- BHP Billiton (BHP +0.8%) plans to shift its China-focused investments toward consumer-oriented commodities and de-emphasize industrial materials such as steel and coal, CEO Andrew Mackenzie says even as he expresses confidence in economic growth and steel demand in the country.
- Mackenzie cites rising Chinese demand for materials with more consumer uses, such as copper, and for food, which could lead to more demand for its potash.
- Nevertheless, China's steel production could rise to 1.1B tons within the next 10 years, the CEO says, as "China's urbanization has a long way to run."
- However, shares are downgraded to Sector Perform from Outperform at RBC in favor of Rio Tinto (RIO), as it lowers its iron ore price forecasts for 2014-15 (Briefing.com).
Wed, May. 28, 12:10 PM
- Iron ore prices are unlikely to rise over the next three months from their current trough, the lowest in nearly two years, China's top economic planning agency says.
- "The period of China's high steel demand has passed, and iron ore demand is now rising at a slow pace of 3%-4% annually," the agency says.
- Iron ore prices sank below $100/metric ton this week for the first time since September 2012, down 25% YTD to a low of $97.
- Iron ore prices depend almost entirely on demand from China, which consumes two thirds of global ore supply and makes nearly half the world's steel.
- Iron ore miners are broadly lower: CLF -3.6%, RIO -2.5%, BHP -1.2%, VALE -0.7%.
Tue, May. 27, 9:15 AM
- BHP Billiton (BHP) flags possible job cuts at its alumina operation in Western Australia, saying the organizational structure at the Worsley operation is under review, following the completion of a major expansion last year.
- The move comes after BHP earlier this month said it was considering selling its Nickel West business in Western Australia, which would add to the ~$6.5B in assets sold over the past two years.
- The Worsley refinery's capacity has increased to 4.6M metric tons/year from 3.5M six years ago, but last year BHP booked a $1.6B impairment charge reflecting weak prices and the continued strength of the Australian dollar.
Thu, May. 22, 9:59 AM
- The union representing tugboat workers at Australia’s Port Hedland says it will suspend taking strike action for the next 30 days to seek a settlement after "productive” discussions.
- BHP had said it would ask the Australian government to intervene to stop a threatened strike in the name of the national interest.
- Iron ore prices have climbed 1.3% to $98.80/metric ton in the past two days, off a 20-month low of $97.50 on May 20, as BHP Billiton (BHP +1.1%) and Fortescue Metals (FSUMF) warned a port strike would paralyze operations.
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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