Tuesday, 20 August 2013

BHP Billiton (BLT)

As the largest mining company in the world, BHP Billiton is essentially a one-stop commodity shop.

It is also unique among the mining majors in having exposure to the oil price – over the last year the group generated just under 20% of its revenues from black gold alone.

BHP makes over half of its profits from mining commodities - particularly iron ore, coal and copper so it is extremely exposed to demand connected to manufacturing and infrastructure e.g. airports, railways and housing, particularly in emerging-market economies such as China. What's more, the fall in profits announced today is largely due to falls in the price of iron ore and coal in recent months.

Despite weakening global demand for base metals and the ongoing crisis in the euro zone, BHP Billiton remains one of the world's most powerful companies.

The full year results announced today show that profits fell 19% to $19.2bn (last year $23.7bn) from total revenues of just under $70bn ($72.2bn 2012).

The proposed final dividend is 59c making a total for the year of 116c - an increase of 3.7% on the previous year. At the current share price of 1890p, the yield will be around 3.9% (subject to exchange rates). Dividend cover has fallen from 2.9x in 2012 to currently 1.9x. Over the past 10 years, dividends have increased from 26 cents to 116 cents - a CAGR of 16%.

Commenting on margins and returns, the company says:

“BHP Billiton's strategy of owning and operating large, long life, low cost, expandable, upstream assets diversified by commodity, geography and market remains the foundation for our sector leading shareholder returns. To extend our track record and create a more productive and capital efficient organisation, we have concentrated our efforts on those world class basins where we enjoy economies of scale and a competitive advantage. 
We achieved a thirteenth consecutive annual production record at Western Australia Iron Ore (WAIO) and a 28 per cent increase in copper production at Escondida (Chile) in the 2013 financial year. In addition, liquids production at our Onshore US business increased by 76 per cent and our Queensland Coal (Australia) operations returned to full supply chain capacity during the period. 
Strong momentum at our operations is expected to be maintained in the medium term, with compound annual production growth of eight per cent, in copper equivalent terms, anticipated over the next two years(6). This high margin volume growth and the Group's determination to reduce operating costs is expected to underpin robust operating margins, even in the absence of higher prices.”

Because of the cyclical nature of the business, holders of BLT should always expect it to be a bit of a rollercoaster ride. I have held this in my ISA since 2007 and topped up in late 2008 at around the £11 area - 18m later and the price was over £25. Throughout this price fluctuation, the dividends have continued to steadily increase so for me, this is very much a case of ignore the price and focus on income.

As I said in my article on market volatility “I have therefore learnt to pay little or no attention to market ‘noise’ and the ups and downs of the prices - my focus will be on dividends and their rate of increase - this is my strategy for coping with volatility”

As ever, please DYOR.


  1. Hi John,

    Any thoughts on the decision to complete the Jansen Potash project?


  2. Hello Jeff,

    No real opinion either way on this. Here's a link to an article in yesterdays FT