BHP Billiton Ltd (ASX: BHP, NYSE: BHP) Changing Gears in 2012
Companies / Metals & Mining Feb 28, 2012 - 03:14 AM GMTBy: Roger_Conrad
BHP Billiton Ltd (ASX: BHP, NYSE: BHP) reported fiscal 2012 first-half earnings that disappointed some. Nonetheless, its stock has still returned 12 percent this year, largely on the continued strength and growth of its iron ore and metallurgical coal operations.
Both of these are crucial elements in manufacturing steel, which remains in very high demand in developing Asia. The massive focus on these resources has triggered speculation that BHP may be ready to sell mines and other assets producing commodities considered less “core.”
The company has an estimated USD10 billion worth of producing assets for aluminum, nickel and zinc as well as smelters deemed easily salable. And management has indicated it may pull back sharply on the aluminum business, where it has operations and assets worth an estimated USD2.2 billion. Proceeds would go to fund the company’s aggressive expansion projects, including the giant Olympic dam in Australia. BHP has also exited the titanium metals industry and is rapidly shifting its development of US shale reserves from natural gas to oil and other liquids.
Cash flow for the half-year ended Dec. 31, 2011, was up 8 percent to AUD18.7 billion. That lagged some expectations but it affirmed the success of long-term strategic initiative, such as 10 percent growth of iron ore output in recent years. Iron ore organic output is anticipated to grow just 4 percent annually over the next several years.
Given the company’s size and output volumes now, however, that’s quite robust and a major part of the company’s estimated AUD20 billion in planned calendar 2012 capital spending.
First-half profit was 5.5 percent lower on rising costs, lower output and lower prices for base metals. But this operation will have progressively less impact on earnings going forward as it’s downsized and as core iron ore and other operations grow. Management also hinted at more acquisitions, a strategy with many long-term positives. I expect BHP to continue its growth momentum in 2012.
Roger Conrad is the preeminent financial advisor on utility stocks and income investing. He is the editor of Big Yield Hunting, Australian Edge, and Canadian Edge, as well as Utility Forecaster, the nation's leading advisory on electric, natural gas, telecommunications, water and foreign utility stocks, bonds and preferred stocks.
Mr. Conrad has a track record spanning three decades, delivering subscribers steady double-digit gains of 13.3% annually since 1990. And he’s done it all with a focus on capital preservation and risk minimization by investing in big dividend stocks including Canadian Income Trusts, high-yield REITs, MLP investments, among many others.
Mr. Conrad has a Bachelor of Arts degree from Emory University, a Master's of International Management degree from the American Graduate School of International Management (Thunderbird), and is the author of numerous books on the subject of investing in essential services, including Power Hungry: Strategic Investing in Telecommunications, Utilities and Other Essential Services
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