Replies to post #249 on The Rising Influence of Rising Affluence

[DewDiligence]

Two impressive factoids about BHP’s FY2009* results:

• Despite a 16% drop in revenue relative to FY2008, cash flow increased by 6% year-over-year due to cost-cutting and better utilization of working capital.

• The EBIT‡ margin was 41%, highest of any major company in the mining industry.

*Fiscal year ends on June 30.
‡Earnings before interest and taxes.

[DewDiligence]

BHP Produces Record Iron Output in Fiscal Q1

[BHP/BBL uses a fiscal year ending June 30. For the first and third fiscal quarters, the company reports production but not earnings. Iron-ore production in FY1Q10 was +11% QoQ and +1% YoY.]

http://www.ft.com/cms/s/0/7c864b14-bdf0-11de-9f6a-00144feab49a.html

›By Peter Smith in Sydney
October 21 2009 04:36

BHP Billiton on Wednesday added its voice to tentative signs of a more broad-based global recovery when the Anglo-Australian mining group reported record iron ore production in the three months ended September.

In its latest production report, the world’s biggest miner said developed economies were stabilising and there had been a flow of “increasingly positive news” across most economies.

“We are starting to see some positive impact of re-stocking of pipelines, particularly in steel-making raw materials, after a period when demand essentially disappeared,” BHP said. Analysts said BHP and other miners were benefiting from increased activities at steel mills in China, the US and Europe.

However, BHP cautioned that China’s re-stocking of commodities was nearly complete and there was evidence of higher than normal stockpiles across the country’s supply chain. “We continue to look for Chinese imports to more closely reflect real demand over the remainder of the 2009 calendar year,” it said.

Iron ore production rose to a record 30.1m tonnes [i.e. metric tons] in the latest quarter, up 1 per cent from the 29.8m tonnes in the same period last year. BHP’s production during the quarter trailed rival Rio Tinto, which last week reported a 12 per cent rise in iron ore production to 47.5m tonnes during the same three month period.

Rio also upgraded its annual iron ore production target by up to 7.5 per cent, but BHP did not provide any fresh guidance on its target for its 2009-10 financial year.

BHP said metals inventories were low in developed countries but there was still little evidence of “sustainable demand” emerging since the end of summer in the northern hemisphere.

“We continue to stress that this developed economy improvement is not without volatility and is from a very low base. We maintain our view that real demand follow-through in developed economies may not be transparent until mid-2010,” it said.

BHP also reported stronger petroleum production, with output up 18 per cent to 41.2m barrels of oil equivalent [about 460K bbd] compared to a year ago.

“Production hit an all time high due to the successful delivery of projects in the deepwater of Gulf of Mexico and Western Australia over the past two years,” BHP said.

“Operational performance was steady and benefited from the absence of weather related interruptions. This was partly offset by natural field decline,” it added.

Copper production fell 8 per cent in the quarter compared to the same period last year due to maintenance activities at Escondida in Chile and Olympic Dam in South Australia.

Gold was down 4 per cent, while lead, zinc and silver rose between 5 and 11 per cent.

BHP was hit by a mechanical failure at Olympic Dam earlier this month and said full production at the uranium and copper mine was not likely to resume until the first quarter of next year.‹

[DewDiligence]

BHP Is Prowling for Oil & Gas M&A

[Although oil & gas comprised only 14% of BHP’s operations by revenue in FY2009 (#msg-40564651), BHP produces about 500K boe/d, which puts it on a par with such companies as HES.]

http://www.reuters.com/article/idAFSGE64N1KP20100524

›By Fayen Wong

PERTH, May 24 (Reuters) - Global miner BHP Billiton Ltd/Plc <BHP.N> <BBL.N> <BHP.AX> <BLT.L> wants to take advantage of the current market weakness and is looking worldwide for acquisition opportunities to grow its business, a senior company official said on Monday.

BHP also said the recent giant oil spill in the Gulf of Mexico has brought some delays to its projects and could hit its production growth forecast of 10 percent for the year ending June 2010, and estimates of 8-10 percent next year.

…There has been persistent speculation that BHP could launch a bid for smaller rival Woodside Petroleum Ltd <WPL.AX>, as both firms are already partners in some key projects and have similar exploration strategies in several regions, including the Gulf of Mexico in the United States and western Australia.

On new projects, BHP said it was looking at development options for the massive Scarborough and Thebe gas fields off western Australia, adding that the building of a liquefied natural gas (LNG) export facility could cost between $15-$20 billion.

Yeager said BHP and partner ExxonMobil Corp <XOM.N> plan to start front-end engineering and development for the Scarborough field, estimated to hold about 8 trillion cubic feet of gas, in fiscal 2011, and that the venture was also considering processing the gas at somebody else's LNG facility.

The firm also plans to sanction the Macedon domestic gas project off Western Australia in the middle of this year, with first gas expected in 2013.

BHP's petroleum business accounts for about 25 percent of its total earnings and is the company's highest-margin business. [This is wrong, as can be seen from the table in #msg-40564651; in FY2009, oil & gas produced 14% of BHP’s revenue and 22% of its operating income. Note that margins in each of BHP’s business segment vary widely from year to year, so the above %’s could be very different in FY2010.]

COMMITTED TO GULF OF MEXICO

Yeager said it has diverted two of the firm's four drilling rigs in the Gulf of Mexico to BP Plc to help contain the oil spill from the Macondo well, which would lead to delays in its own drilling and production schedule at the Atlantis and Mad Dog fields.

Despite current uncertainties in the Gulf, BHP said it remains committed to the region and believes there were further growth opportunities.

"We are confident that our long-term strategy will not be impacted. If anything, we will look to see if there are any opportunities to see what else we can do," he said.

BHP's giant Atlantis oil field, which is operated by BP, could be idled if U.S. legislators win their fight to investigate safety concerns at the platform. BHP holds a 44 percent interest in the field, while BP holds the rest.

Yeager also said BHP still sees returns on its petroleum operations in Australia and the Gulf of Mexico in the United States as competitive.

"Right now, we continue to see Western Australia and the Gulf of Mexico as having competitive rates of return in the oil and gas business," Yeager said.‹

[DewDiligence]

Bizarre reason for BHP downgrade:

http://www.marketwatch.com/story/bhp-billiton-fresnillo-lonmin-cut-at-jp-morgan-2010-06-16

Mining giant BHP Billiton was downgraded to underweight from neutral at J.P. Morgan with the broker saying that the move reflects the firm's valuation premium to peers and lack of operational and financial leverage to any one commodity.

This is funny because BHP’s broad diversification is the main reason I consider it a core Natural Resources holding. (Please see the table in #msg-40564651 for details.)