Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Is BHP Billiton (BHP) Too Big to Grow?

Companies / Metals & Mining Nov 22, 2010 - 06:21 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleJack Barnes writes: In the banking crisis we learned that a group of U.S. banking and insurance firms are allegedly "Too Big To Fail." Now the world's largest mining company BHP Billiton Ltd. (NYSE ADR: BHP) has grown so large it is struggling to make meaningful deals, introducing us to another phrase: "Too Big To Grow."

BHP's dilemma is not surprising. Its downside is that, as the largest mining company in the world, it has outgrown its roots. BHP's current management has shown it cannot pull off a major transaction while handling a company of this size.

Its heavy weight becomes an overwhelming force in any sector it applies its resources towards, which has caused the company to have its last three planned mergers stopped by regulation red tape. Nations are not interested in having their prime natural resource company swallowed up and then forgotten about by a mining behemoth.

BHP last week scrapped a $40 billion hostile takeover bid for Potash Corp. of Saskatchewan Inc. (NYSE: POT) after the Canadian government rejected the offer. BHP called off a $147 billion hostile bid for Rio Tinto PLC (NYSE ADR: RTP) in 2008 because of financial market turmoil, and a $116 billion iron ore venture with that company fell through in October due to regulator opposition.

The unsuccessful M&A deals aren't the only financial blunders the company has suffered.

In Canada, before BHP made the offer to purchase Potash, it was working on a project that would have become the largest potash mine in the world. The Jansen potash deposit is a world-class project with a development price tag of $10 billion or more.

After spending hundreds of millions of dollars, BHP decided to abandon the project, write off the costs associated with it, and make its offer for Potash. Now that the bid failed, BHP is again looking at developing Jansen.

It also has the stigma of the Western Australian Ravensthorpe nickel mine failure, which was supposed to cost the company around $1 billion but grew to around $3 billion in costs and write off expenses. The closing of the mine, less than a year after it opened, was so unpopular politically that BHP was forced to sell it for $340 million to Canada's First Quantum Minerals Ltd. (TSE: FM), which expects to start operations again in 2011.

If the new owners are able to produce it profitably in the future, BHP management should be forced to resign.

So BHP is an enigma. It was built from the merger of two of the largest mining concessions in 2001, and since then management has failed to execute on any project it's attempted.

The three strikeouts have caused the company to reevaluate its future, and with that change comes an opportunity to safely put some money to work, while enjoying a growing dividend. You see, BHP is too big to grow, but has a growing pile of cash that the company has no need for - which means it has to start to return capital to its investors.

That reality is already obvious to the board of directors, as they announced last week a reactivation of their multi-billion dollar share buyback program that was halted in 2007. The company said it would buy $4.2 billion of its shares under a $13 billion buyback program that had been suspended for three years. Look for BHP in the next year or two to announce a series of dividend increases, along with an increased share buyback.

BHP sports a market cap that is worth $234 billion, making it one of the highest valued companies in the world. It pays a 2.1% dividend, which is expected to grow in the near future.

If you compare BHP's performance over the past five years to the Standard & Poor's 500 Index, you'll see it returned 169.34% compared to the S&P's 4.3% decline - netting a nice profit for those investors who got in at the right time. So the question today is, is it time to book those profits, or buy more?

What the company is missing is a sure path toward a larger future. At the political level it is already too large. The company has a management that has not shown an ability to execute. It's going to have to focus on internal organic growth.

Let's do a quick review of BHP:

•It has suffered three failed merger attempts.
•It has abandoned two major development projects.
•It has growing future dividends.
•It has resumed its share buyback.
•It is seeing only slow organic growth.
While I like the assets that BHP holds internally, the management has been underwhelming in its ability to execute for shareholder future value creation. It's this reason and this reason only that I cannot put a buy recommendation on the stock.

Action to Take: BHP is a hold. It needs a new future path made clear to both shareholders and stakeholders. It has the properties to continue its path as the world's largest mining company. However, it will need to learn to execute on internal mega projects. If you own BHP, let's consider a covered call program for this position in your portfolio. You can generate a growing cash yield above the current dividend. It is going to be years before BHP is considered a sexy commodity stock again. It has shown that it is just too large to be a factor in future market M&A activity.

(**) Special Note of Disclosure: Jack Barnes holds no share or known exposure in BHP Billiton Ltd.

[Editor's Note: If there's one thing top global investors understand, it's that you have to "follow the money" to reap the benefits of the best profit opportunities that are available at any one time. Money flows point out the next profit opportunities. Sometimes that means "following the money" from one sector to the next. Other times that means moving from one geographic market to another.

To make those moves successfully, investors need a compass or, better yet, a guide. And successful investors will tell you, one of the best guides out there is The Money Map Report.

This monthly advisory service - an affiliate of Money Morning - employs many of the same experts whose columns you read here each day. The difference is that The Money Map Report's straight investment analysis. Our writers use proprietary money-flow indicators to identify and isolate the most timely profit opportunities you'll find anywhere. For more information about The Money Map Report, please click here.]

Source :

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in