Research archive for BIL

The most important "thing" to come out of the BHP Billiton results yesterday was their downgrading of peak Chinese steel production. Which is very important for their iron ore and metallurgical coal business. Of course this is very important for all iron ore producers globally. BHP reckons that, from their presentation: "we expect China's crude steel production to peak between 935-985 Mt in the mid 2020s". The previous guidance was at the high point 1100 Mt.

There seems to be some confusion around the unbundling sale of South32. This happened when we elected that very option, electing to sell the shares rather than accepting them (the South32), when BHP Billiton unbundled them over a month ago. The average price achieved by the people managing the program (Goldman Sachs) was 1938.80 ZA cents. Current price of South32? 1625 ZA cents, you basically get a whole 355 cents more, which is a good outcome. Plus these sales were brokerage free, most importantly however, seeing as the percentage was so small, on a relative basis, it was the right thing to do. The value, at the higher sale amount, is roughly 8.1 percent of the current value of your BHP Billiton shares. That is good news.

It has taken longer than expected for the Bhp Billiton Plc - Demerger Of South32 Completion Of The Sale Facility to happen. On Friday you will receive the cash for your share of the South 32 spin off. The value per share will be R 19.38 which is about the average price since the shares listed 2 months ago and is much higher than the current R16.50 that the shares are trading at.

Hey, when do I get my money from the South32 unbundling from BHP Billiton? Good question. I called around locally and could not find anyone who knew the answer yesterday. I trawled the SENS messages and the website of BHP Billiton to find some clarity, there was none. Then I though to myself, that is dumb, why did I not think of calling the company in the first place. So I searched online and in SENS messages and found that the South African media contacts were not in South Africa, there was a fellow in London and a woman in Melbourne. I called the fellow in London, his colleague said that he was out, I sent an email and got an out of office. Oh dear. So in hope, I called Melbourne and chatted to a very friendly woman who said that she would get the investor relations people to call me. I thought in the interim that I should send an email to a fellow in London who was on their investor relations page.

BHP Billiton, the share price that is, will trade around 7 percent lower at the get go today, if the Aussie market is anything to go by. An email to a client that asked the question last week (what will it be worth) saw me answer this way: Good question. The simple answer is that nobody knows. South32 represents 4 percent of BHP Billiton EBITDA. Work on somewhere between 5-7 percent of your current BHP Billiton value. In a way I am glad that I was close (phew), in a way I was hoping that the market response might be a little more favourable. You know, the whole idea that these manganese and silver assets could be worth more to somebody else. Anyhow, you will recall that we advised most clients to take the cash, this is a good opportunity to exit the assets that management and shareholders view to be non-core to BHP. As simple as that. If management and shareholders approved the entire demerger and recommended it, then we want to hold the rump of the business and not the smaller assets. Understood?

BHP Billiton shareholders have overwhelmingly supported the demerger and the creation of South32 by default. Via the IR page: Shareholder support for demerger of South32 by BHP Billiton. Shareholders voted 98.05 percent in favour of the deal. When is this going to happen then? Very, very soon. 18 May soon, which is not next Monday, rather the Monday thereafter. Yesterday was also the BHP Billiton General Meeting, chair Jac Nasser was speaking from Perth, here are a few extracts:

BHP Billiton amongst many other companies released results this morning, long before most of us were at work. Reason being of course is that they like to give the Australian shareholders the ability to be able to see these results and act accordingly, if that is ever something, "act accordingly". These are results for the half year to end December, the company has been hurt hard by falling prices, some of their key commodities Iron Ore and Petroleum have seen precipitous falls in their respective prices. CEO Andrew MacKenzie put on a brave face when delivering results that are ahead of market consensus, the biggest surprise to the market (although we have intimated that this might be the case) is that the dividend has been hiked. In a falling commodity market the company has managed to deliver strong cash flows and pay down debt. The interim dividend has been hiked by five percent to 63 cents, at the current Rand/Dollar exchange rate of 11.64 that translates to 733 ZA cents before tax. I guess that may (probably not) change with the budget speech tomorrow. Probably not.

BHP Billiton production report yesterday, perhaps the biggest focus point for many people was (as anticipated) a strong fall off in the amount of oil spend, with regards to their business. The full operational review can be downloaded from their website. The must knows are that overall group production increased by 9 percent, driven primarily by Met Coal, Iron ore and Petroleum, Copper showed a decline, as a result of lower grades. The sad truth is that whilst we see all of these production ramp ups, they come in the face of a really precipitous fall in iron ore and more especially petroleum prices. Equally copper, albeit by not as much as the others. The company chief, Andrew Mackenzie said that the cost saving initiatives are faster than anticipated and will help against lower prices. Equally however the number of rigs operated across their US onshore business (read Shale) will drop 40 percent (around 10 rigs I think) and that the higher margin Black Hawk acreage will be all the company focus. The cost for the company (and you the shareholder) is 200-250 million Dollars, US.

BHP Billiton issued a media release this morning our time: Focusing on Operating and Capital Productivity, in which they suggest that they can save more money. 4 billion Dollars of annualised productivity gains, which is half a billion Dollars more than previously guided. Reducing spend with no change in volume growth. There is also an associated presentation, titled Maximising value and shareholder returns. A few slides in there of importance, one of the more interesting ones is the post demerger, the core business will only have four legs, Petroleum & Potash, Copper, Iron Ore and Coal, 19 other assets ditched. Simpler management structures, less duplication means higher cost savings. NewCo, the company with all the other assets will list sometime in the middle of next year, we can cross that bridge of what to do when we get to it.

Byron beats the streets Yesterday we received a production update from our favoured entry into the commodities space, BHP Billiton. Here is the table hacked from the presentation.

How are "things" in China? Well I guess the recent softness in the luxury trade, evident through all of the luxury goods producers numbers (including Richemont), as well as the reported lower manufacturing numbers. At the same time housing progress is cooling, the building is slower and inventory (housing) is building, excuse the pun. So what do you do in this case? I suspect that most folks are unable to grasp the ability of an ever growing economy to grow at the same rate. That is why the newer Chinese "goal" of around 7.5 percent, relative to the double digit growth of the prior years sounds "soft". Remember however that 10 percent on 50 units is much less than 7.5 percent on 100 units.

BHP Billiton released their annual report last week, towards the end and we get a chance to have a look at the business. Remember also at the same time the letter from the Chairman fleshed out a little more the proposed de-merger of none core assets, or splitting of the portfolio, whatever it is that you want to call it. Firstly, the 2014 annual report, follow the link to download it.

BHP Billiton is one of our core holdings and is our best entry point into the world of commodities. As you may have heard they are demerging a whole lot of assets and separately listing the business in Australia and South Africa. Before we go into the details of the demerger lets have a bit of a History lesson (in the office we received a refresher from Paul our resident walking, talking Wikipedia equivalent).

BHP Billiton have released their production report for their full financial year to end June 2014. Iron Ore production at a record of 203.564 million tons, the quarterly run rate suggests annual production of around 225 million tons. i.e. If the company were to maintain the last quarters performance, from an Iron Ore point of view.

Yesterday BHP Billiton released a presentation that they gave at The Bank of America Merrill Lynch Metals, Mining & Steel Conference (quiet a mouthful to say). The highlights of the presentation were that during the current financial year there have been significant improvements in productivity with truck utilisation up 8% and their digging fleet utilisation up 10%. Increased productivity is great news for shareholders, invested capital is now producing greater returns, which brings down operating costs going forward.