Update BHP Billiton (BHP)
When I added BHP Billiton (BHP) to my Jubak Picks 50 portfolio in my book The Jubak Picks I said that the company was a one-buy way to get exposure to a wide spectrum of commodities.
In the first half of 2009 that diversification paid off big, the company reported on August 12. The company’s iron ore business reported an operating profit of $6.2 billion; the base metals (copper, lead, zinc, and such) division reported $4.6 billion in operating profits; and the oil business reported $4 billion in operating profits.
That diversification didn’t prevent company’s revenue from falling (by 16% from the first half of 2008) or pre-tax profits from plunging by 67% from the first half of 2008.
But it did provide enough stability so that the company was able to maintain its dividend payout of 41 cents a year for the six month period. Competitors Xstrata (LSE: XTA.L) and Anglo American (OTC: AUKY.PK) have both suspended their dividends.
That stability has also enabled the company to press ahead with one of the mining industry’s biggest capital spending plans. In the next 12 months the company will invest $5.8 billion in its iron ore joint venture in Western Australia with Rio Tinto (RTP). Other capital projects in that period come to a little more than $11 billion.
That should ensure enough internal growth to keep the company cooking on all divisions—if only the global economy cooperates.
BHP Billiton CEO Marius Kloppers noted that global commodities markets are still hard to read. It looks like China, which had drawn down its stockpiles of iron, copper, and other commodities earlier in the slowdown has pretty much finished restocking its inventories, Kloppers said. So demand from China may be set to taper off. But the slack could well be picked up by restocking from the United States and Europe, which have both drawn own commodity inventories.
At some point, of course, end demand has to pick up again, or these replenished inventories will just sit there on the ground.
Related Posts
No related posts.
2 comments
Post a comment
Comments that include profanity, or personal attacks, or antisocial behavior such as "spamming" or "trolling," or other inappropriate comments or material will be removed from the site. We will take steps to block users who violate any of our terms of use. You are fully responsible for the content that you post.
Jim,
You haven’t seemed worried much, if at all, about all the iron ore expansion plans. Fortescue, BHP, CITIC, etc. have huge expansion/new development plans. I’ve read there are development plans for at least another 430 Mt/year mining capacity by 2011, which is about 25% more capacity than the roughly 2,000 Mt/year now. China is pouring billions into iron ore mining expansions.
My question is can the world use it all? I don’t think per capita peak United States consumption ever reached 1 ton/year. China consumption is estimated somewhere around 450 Mt/year (net iron). Even if they could double use and consume close to 1 ton/year per capita by 2011 then they would barely use up all the new supply.
I realize this is a simple example and doesn’t account for the rest of the growing world, but still, 430 Mt/year expansion seems pretty significant.
Just curious what you and everyone else thinks.
Disclosure: Own Fortescue indirectly through LUK.
I am by no means an expert ! But from a look at my charts, BHP has had a huge run up, and if it has anywhere to go for the time being, I’d bet it is down, or sideways. Any further run up would be to hedge inflation. // Lets not forget, that this huge rally we have had was lead by Goldman Sachs, and that the market is 50% ahead of the economy, and nearly all demand is coming from government stimulis.. When that stimulis runs out, they can either accept depression( deflation ) or… stimulate again. = Inflation. My opinion, for what it’s worth.