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BHP Set To Reap Rewards From Pending Commodity Boom

Mar. 01, 2021 6:28 PM ETBHP Group Limited (BHP)VALE10 Comments
ZMK Capital profile picture
ZMK Capital


  • Global mining has asserted its presence as being one of the brightest investment themes in a post-Covid-19 global economy.
  • Bolstered by China’s economic rebound and growing trends in renewable technologies, mega-cap mining stalwarts look poised to reap the rewards of a global commodity super cycle.
  • With the US dollar under increasing pressure and interest rates pushing to the upside, what better place to be than in a diversified global mining play.
  • BHP adequately fits the bill and allows investors to take a diversified approach to natural resources.

Brief Thesis

The future looks poised for upside in global commodities. Bolstered by China’s economic rebound and changing trends in consumer tastes, the mining sector is gradually showing signs of revival. With balance sheets under control and announcements of interim distributions in the form of dividends, mining giants appear to have opted to return funds to equity holders rather than reinvest in capital intensive mega-projects.

The image is caricatured somewhat but represents a degree of reality – one in which a Sino-industrial rebound, married to a drying up of natural resource projects, a weakening dollar, and a possible spike in inflation, may pave the way for a global commodity super-cycle.

In any case, any inflationary economic outlook is accompanied by a move to the upside in global commodity prices. Not only have we seen this recently with oil’s relentless push to the upside, but also in meaningful moves made by copper, nickel and iron ore, key ingredients in renewable battery technologies. While I remain bullish on global energy, it is increasingly obvious that enduring changes to the energy mix will have reverberations across the oil patch.

BHP is now London’s largest listed company, overtaking Royal Dutch Shell – possible testament to changes in trends in global natural resources

Source: Bloomberg

Yet, increasingly, it seems like various industries – such as global transport – have fallen out of love with one commodity (crude oil) in favor of another (often also energy intensive) such as nickel and cobalt. Reality is the macro-environment is positioning itself aptly for a commodity boom.

With this information, choosing which firms will wholly benefit from this positive economic landscape, provides an excellent investment opportunity. Accordingly, my outlook for BHP (BBL) is bullish in the near to mid-term.

Source: BHP Economic & Commodity Outlook

BHP is the world’s

This article was written by

ZMK Capital profile picture
ZMK Capital is a Southeast Asian based prop trading desk focusing on long/ short macro set ups globally. Additionally, the desk publishes equity specific research, ETF overviews, earnings plays and macro-economic analysis. Current focal points include the global energy market, natural resources, macro-economics, interest rates and Fx. Beyond managing money in these markets, interests include data science linked to securities markets, game theory & professional sports.Feel free to direct message ZMK if you are interested in being part of a community of prop traders, investors & money managers.

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Comments (10)

Bought this and going down ever sense. When does it stop? I get out before the rout goes further. Any ideas?
I think that nickel will be a big profit driver in the future.
James Hanshaw profile picture
I thought China had stopped or will stop buying from Australia. If so, how does BHP survive?
ZMK Capital profile picture
@James Hanshaw China is the world's premier iron ore consumer but not the sole one and BHP services a global market. Supply/ demand dynamics means that if China were to source only from Brazil (for example), then this would create a supply gap elsewhere which ultimately would be filled by BHP.

Reality is, China cannot sole source iron ore and the global market is such that lowering BHP demand would not depress global demand - it would however create demand misalignment, increased logistics cost and cost inefficiencies across the supply chain.
James Hanshaw profile picture
@Jacob Kilby I understand the logic but politics are not always logical and I thought China was determined to punish Australia on a number of issues. Wine exports to China have been badly hit, I believe.
ZMK Capital profile picture
@James Hanshaw Completely agree.

This remains an inherent risk in taking the long view on an all in commodity play. I would remark nonetheless the difference between consumer discretionary goods like Wine and iron ore - the main ingredient to industrial grade steel - and part of the life blood of the export focused Chinese economy.

While wine exports have been hit, China is not dependent on them to maintain its current account surplus. This is the opposite for iron ore. Invariably, China will look to source more from Brazil but reality is Vale has its own operational woes to deal with.

Excellent remark and something to keep our eyes on. Thanks.
US investors can invest in BHP Billiton under two tickers: BHP and BBL. BHP is the NYSE ticker for the ADRs of the Australian-traded shares of the company. BBL is the NYSE ticker for the ADRs of the London-traded shares. Both shares
provide the same dividend and the same pro rata ownership of the company's assets and earnings. However, for complex reasons related to Australian tax matters -- of no import to US investors that I'm aware of -- the BBL shares are much cheaper than BHP. Today, 3/1/21, BHP ADRs closed on the NYSE at $78.76, while BBL ADRs closed at $65.10! Both pay the same dividend, and there is no withholding tax on either currently. So don't buy BHP, buy BBL!

Long BBL
SilverisREALMoney profile picture
@ahimsaka AGREED. Very tempted to go long BBL. However, there IS a difference in dividends. The Australian shares or ADRs under ticker BHP yield about 1% less than the U.K. domiciled BBL, as demand for Australian shares is stronger due to the 'franking' of dividends and that effect on tax liability. BHP Billiton Limited ADR Australia (BHP) yields 5.11% and trades for ~$79 share (ADR is equal to 2 shares of BHP Australia) and BHP Billiton Plc ADR London (BBL) trades for $66 and yields ~20% more with a 6.11% dividend, and, like the BHP Billiton Plc ADR, represents 2 shares of the British Plc. Anyone looking for clarity on BHP vs BBL, see www.joshuakennon.com/...
@SilverisREALMoney the yield on the Australian shares is less because the share price is higher. The dividend is exactly the same, although declared in GBP for the London-traded shares (ADR ticker BBL) and paid in AUD for the Sydney-traded shares (ADR ticker BHP). I spoke to their investor relations some time back and was assured that the UK-traded and Australia-traded shares have equivalent claims on assets, earnings and dividends. Albeit in different currencies. It's a bit like RDS A & RDS B.
SilverisREALMoney profile picture
@ahimsaka That makes perfect sense. Thanks for the clarification...
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