Research archive for BIL

There are many reasons we have chosen BHP as our preferred commodity stock. Sasha has mentioned this a lot lately, mostly in the wake of Anglo's issues and the resignation of Cynthia Carroll. So no, we are not perma-bulls on all commodities. We have been very selective in our mix. Gas, oil, copper, iron ore, coal, potash. All these commodities are vital in the in the development of a region going from an infrastructure boom all the way to a consumption based economy.

Right. This is perhaps the most exciting time of the quarter, time to get down and dirty with the BHP BILLITON PRODUCTION REPORT FOR THE QUARTER ENDED 30 SEPTEMBER 2012. As I looked at the production report I was immediately struck with the petroleum division number. In the highlights segment, BHP Billiton say: "Petroleum production averaged a record 666 thousand barrels of oil equivalent per day during the September 2012 quarter as the Atlantis and Mad Dog facilities in the Gulf of Mexico successfully recommenced production.". Excellent, in fact the quarterly production number of 61.25 million barrels of oil equivalent is roughly half of what they used to produce. The company says that they are on track for 240 million barrels of oil equivalent for the year. To put that number into context, that is roughly 40 million barrels of oil more than South Africa uses. Or around 435 days worth of local usage, check it out -> South Africa Crude Oil consumption by year. Excellent.

This is newish news about BHP Billiton: BHP Pursuing Bid for Petrobras Gulf Stake. But of course the story suggests that there are just people familiar with the talks between the parties. And there are others involved. But I know that BHP Billiton are keen on North American energy assets. Just yesterday I was reading that they are keen on North America full stop, with their focus on the potash project in Jansen not going to be cut from expansion plans. Energy and fertilizer, I like it, and that is what separates BHP Billiton from their mining peers.

On Friday we had an announcement from BHP Billiton which described the completion of the sale of its 37% non-operating interest in Richards Bay minerals to Rio Tinto for $1.9bn. From a South African perspective that is a sizeable deal but for a company of BHP's size it barely reached the headlines.

First, BHP Billiton released a presentation, J. Michael Yeager, the Chief Executive of the Petroleum division presented an overview and update. Follow the link of the Energy & Power Conference. The map part on slide 4 is the validation again of the geographical diversity of the company. The petroleum division has been one of the great parts of owning this company. But the recent shale acquisitions are a place where a lot of the growth is going to come from. For the time being however, no matter which way you look at it, the price paid by BHP Billiton was too much. Flip through the slide show, let me know whether or not you feel better about their business.

What has also been happening is that iron ore prices have been thrashed, down 15 percent for the month of August. And now they are below 90 Dollars a ton. At that level the squeeze is now on. The Chinese iron ore industry, as low grade as it is, is unprofitable below 120 Dollars a ton. Guess what they are doing? Not producing is my best guess. This is the lowest price that iron ore has been in three years. Yes. Three years.

BHP Billiton has had some very important news over the last few days, since their results release that has been capturing most peoples attention. First, a rather innocuous piece about the development of the Western Australian Iron Ore (WAIO) operations harbour. Yes, really. It turns out that the aggressive roll out of the Outer Harbour. The work has therefore been "slowed". Now I have never been to Mt. Whaleback where the ore comes from, and perhaps I will never get there. The same is true for Port Headland, the harbour in question. I have however seen pictures of Mars just this morning, it looks devoid of grass, trees and all water sources. There is no life, pretty much like the Arsenal and Western Province trophy cabinets. Ouch. But basically BHP Billiton have decided to step back. Right now, the industry does not need massive expansion. They are big enough to be able to do that.

OK, so we have perhaps one of the most important days today, well at least for us over at Vestact here. No, it is not the fact that we have the sliding doors open celebrating the arrival of spring, but rather the fact that BHP Billiton reported their full year numbers this morning. Byron was so excited he did not sleep last night. No, that is not entirely true, he slept well he told me, but the excitement around the results are of course high here in our office. Market nerds.

An announcement from BHP Billiton this morning is met with a touch of disappointment, but I guess a sign of the times. They have taken a write down on two assets, one an Australian Nickel asset and the other a recently acquired North American gas asset. And these are not small numbers, they are big numbers. Here is the official announcement US Shale and Australian Nickel Asset Review, and here are the two key lines:

Someone pointed something out, at one point in the morning yesterday, the share price of BHP Billiton was more (in Rands) than the share price of Anglo American. So what? Their market caps are vastly different, Anglo is not the giant in the mining space that it once was, and BHP Billiton are the big daddy amongst the mining resource companies. Globally. I often say that we are lucky to have access to a company of such quality.

BHP Billiton released their production report for the full year this morning and on balance it looks good. I think that the thesis that we have on the company will hold true over time, and in the short term however all these commodity producers are lumped together from a quality point of view. But in our opinion, we agree with company and the CEO, their quality of their asset base is unrivalled globally. Tier one assets as Marius Kloppers often calls them.

BHP Billiton has released a presentation about their base metals business this morning, it always makes for interesting "looking" and reading -> Building momentum in Base Metals. There are always a couple of slides that catch your attention, this one in particular is a goodie, what it shows is resource usage in countries as their GDP per capita rises and they head towards developed country status. The slide is titled: Demand evolves with economic development

Yesterday Sasha covered the BHP Billiton report which was titled "Technology, strategy and the growth of gas as a source of global energy." I want to touch on it again because as investors in this company it is an extremely important growth story that Billiton are investing billions of dollars in. Billions of dollars which may have been ill timed.

There are a whole lot of interesting slides in a BHP Billiton presentation: Technology, strategy and the growth of gas as a source of global energy. Check out the slides, because a picture of course tells ten (or is it a thousand) words. So I have gone and grabbed a whole lot of screen shots. First, world natural gas consumption shown in Billion Cubic Feet Per Day. I can't even imagine how big a billion cubic feet is, and how you can actually shrink it, but for the purposes of consumption and production, that is what it is measured in. It is much easier to imagine a barrel of oil.

This is very important, pay attention. This morning the fellows from BHP Billiton said that they thought that Chinese iron ore demand would drop to single digit growth, if it is not there already. This is as the Chinese economy continues to slow. Oh dear I hear you say, but wait, because in addition to their current consumption, expectations are that Chinese iron ore consumption will grow at 100 million tons per annum for the next eight years. And in addition to that 600 million more tons to satisfy growth expectations, as well as replacing around 200 million tons of current supply. So that sounds like over one and a half billion tons of iron ore needed in excess to the current supply. Wow. Just to put it into perspective, the chamber of mines website told a friend who told me that more steel is poured in one hour than all the gold ever poured. I am pretty sure that if you did the math you would come to the conclusion that perhaps gold ought to be priced higher, simply because of the rarity.