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. Read more
China plays hardball on iron ore but the iron ore miners are the winners so far
China has so far refused to sign a long term contract with the world’s big iron ore exporters, Vale (VALE), BHP Billiton (BHP), and Rio Tinto (RTP). The goal was to get a big price break on iron ore prices. But it now looks like China’s tough stance has backfired. Chinese companies are now either buying iron ore on the spot market at prices about 50% higher than those in the annual contracts signed by Korean and Japanese steelmakers back in April,or scrambling to sign side deals at the price set by Korean and Japanese buyers.
The result is that spot iron ore prices are booming. The big three iron ore exporters are getting higher prices for their ore than they forecast just a few months ago. And Chinese steelmakers are announcing huge price increases for their products just as China tries to revive its economy with a big shot of spending on iron and steel-intensive infrastructure. Read more
Two winning stocks in the war over iron ore
The body count is five and rising.
First, the Beijing government arrested four Rio Tinto (RTP) staffers in China to negotiate the price of iron ore with Baosteel and other Chinese steel makers. Then, the Chinese detained an executive at steelmaker Shougang Group and announced that Baosteel, Anshan Iron & Steel, Laigang Group, and Jigang Group are all under investigation.
The charges? Spying, specifically stealing state secrets, and bribery. (And just in case you think the Chinese aren’t serious, on July 15, Chinese courts sentenced Chen Tonghai, former head of Sinopec, to death (suspended for two years) on a bribery charge.)
But with the question of what constitutes a state secret so vague in China—if the authorities so decide even doing due diligence on a company about to list on the stock exchange could involve state secrets—no one doubts that the arrests are merely another round in the battle for control of the world’s raw materials.
I don’t know how that battle will ultimately come out, but I can name two companies that stand to come out ahead just while the fight rages.
