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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. 22, 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
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. 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%.
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.
Tue, Nov. 18, 12:49 PM
- Iron ore extends its tumble deeper into five-year lows as declining home prices in China add to worries that an economic slowdown in iron ore's biggest buyer will deepen and exacerbate an oversupply.
- Ore with 62% content delivered to Qingdao, China, has retreated 47% YTD to $71.80 a dry ton, and Citigroup thinks prices may drop to less than $60/ton next year as output rises further and demand remains weak; China’s bad loans climbed in Q3 by the most since 2005, while new-home prices declined, adding to speculation the cooling economy will weaken further.
- VALE -2.9%, RIO -1.9%, BHP -1.1%, CLF -6%, X -1.4%, AKS -1.9%.
Fri, Nov. 7, 10:58 AM
- Iron ore prices cap their biggest weekly decline in more than five months and its third straight week of losses amid an expanding global surplus.
- Ore with 62% content delivered to Qingdao lost 4.7% this week to $75.84/dry metric ton, data from Australia's Port Hedland showed record iron ore exports last month, and steel mill closures ordered by China this week to curb air pollution for a global summit also was seen hurting demand.
- Iron ore has lost 44% YTD as producers including Vale (VALE +3.2%), BHP Billiton (BHP +3.7%) and Rio Tinto (RIO +2.6%) expanded supplies, and ABN Amro's Ben Cheung does not expect the oversupply situation to be alleviated next year.
- Vale, which is seeking to boost output by 50%, this week opened its $1.4B port in Malaysia where its Valemax vessels can unload cargoes for onward shipping to clients in Asia in smaller vessels.
Thu, Oct. 16, 7:32 AM
- BHP Billiton (NYSE:BHP) confirms it will pursue a secondary listing in London for a new spinoff company it plans to create from its less-favored assets.
- BHP had been under pressure from shareholders unhappy with its original plan to have the spun-off company’s primary listing in Australia and a secondary listing in South Africa only.
- But because the new company's primary listing would still be in Australia, it would not be eligible for inclusion in the benchmark FTSE 100 index, meaning funds that track the index would not own the stock.
- BHP -2.2% premarket.
Mon, Oct. 13, 2:18 PM
- Cliffs Natural Resources (CLF +14.1%) shares are surging as iron ore prices posted their biggest intraday gain since May after falling steadily in recent weeks.
- Investors covered short positions on expectations prices may have hit bottom; sentiment also was boosted by data showing China's overall exports rose more than forecast and imports unexpectedly gained in September.
- The big gain occurs despite a J.P. Morgan downgrade to Neutral from Overweight with a reduced price target of $5 from $13, as the firm cites CLF's lower iron ore price deck and sum-of-the-parts valuation.
- Other iron ore producers also are up: VALE +8%, RIO +5.3%, BHP +4.2%.
Mon, Oct. 13, 8:47 AM
- BHP Billiton (NYSE:BHP) and Mitsubishi say they expect their newest coal mining operation in eastern Australia to be able to ride out a prolonged market slump, even amid concerns raised by new Chinese import tariffs.
- The companies today officially open their $3.4B Caval Ridge joint venture coking coal mine in Queensland state; the operation, designed to produce 5.5M metric tons/year, first started began coal earlier this year.
- The price of Australia’s premium coking coal has fallen more than 15% YTD to ~US$112/ton, prompting widespread cost-cutting and workforce cuts, including the BHP Billiton Mitsubishi Alliance joint venture, which is the world’s biggest exporter of coking coal.
- BHP +3.1% premarket.
Thu, Oct. 2, 8:25 AM
- Walter Energy (NYSE:WLT) +5.7% premarket after The Guardian says BHP Billiton (NYSE:BHP) or Rio Tinto (NYSE:RIO) may be interested in buying the coal company for $5/share.
- Clarkson Capital is out with a note saying the paper has passed along many rumors on U.S. coal activity over the years and none have proven true (Briefing.com).
Thu, Sep. 25, 12:39 PM
- BHP Billiton (BHP -3.3%) says in its annual report that it may be close to resolving a U.S.-led investigation into possible violations of anti-corruption laws, some of which relate to its sponsorship of the 2008 Olympics in Beijing.
- BHP also says it will cut capital spending in its petroleum division by $279M in FY 2015 to ~$5.6B, down from nearly $5.9B in 2014 and $7.1B in 2013.
- Meanwhile, CEO Andrew Mackenzie earned an $8M package in his first year at the helm of the company, significantly less than predecessor Marius Kloppers had been receiving.
Mon, Sep. 22, 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%.
Thu, Aug. 28, 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.
Tue, Aug. 19, 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.
Fri, Aug. 15, 7:44 AM
- BHP Billiton (NYSE:BHP) +2.1% premarket after saying it may pursue a de-merger of the company, spinning off various mining assets into a separately listed entity or entities in an attempt to simplify its portfolio.
- BHP says it wants to focus on its major iron ore, copper, coal and petroleum assets, and potentially its potash business, which would indicate that assets such as nickel, aluminum and bauxite may be spun off.
- A demerged entity could be valued at ~$8B and generate ~$1.6B in earnings in FY 2015, UBS estimates; the total does not include BHP’s Australian Nickel West operation, valued at $340M, which UBS believes would be sold separately.
Wed, Aug. 13, 12:43 PM
- Vale (VALE -1.7%) is sharply lower after a key batch of Chinese economic data for July showed some slowing growth; Vale is more dependent on iron ore prices staying high than Rio Tinto or (RIO -1.6%) BHP Billiton (BHP -0.6%).
- Cowen reiterates its Market Perform rating and $16 price target on Vale, saying that while there’s much focus on the cost for Vale to expand its mines, investors may be ignoring the value of some new projects.
- Over the longer-term, investor sentiment could begin to shift as continued strength in iron ore results from higher volumes and improved product mix as well as improving non-ferrous, Cowen says.
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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