BHP Results

Tuesday was a busy day. The big release was results from BHP Billiton. Here is the presentation, I urge you to give it a look. It is quick and easy to understand. More importantly, some of the graphs there explain so much about the business, where it has come from and where it is going. Firstly, here are the financial highlights, then we can look at operations in more detail.


"BHP Billiton delivered robust financial results in the 2013 financial year, a period characterised by slowing global growth and volatile commodity markets. Underlying EBIT declined by 22 per cent or US$6.1 billion to US$21.1 billion. A substantial reduction in commodity prices reduced Underlying EBIT by US$8.9 billion, which more than offset the significant US$2.7 billion reduction in controllable cash costs achieved during the period. Consistently strong operating performance across the business contributed to a US$1.8 billion volume related increase in Underlying EBIT."


If you go back to the presentation you will see that negative commodity prices contributed to an $8.9bn drop in EBIT. Due to volume increases and cost cutting exercises the overall drop was mitigated down to $6.1bn. That is the risk you get when investing in miners and even though operationally they are making huge strides, you cannot control the price. Of course it works the other way around and when commodity prices are increasing these businesses can be unstoppable.

So what is going to happen to commodity prices? According to the report, in 2010 the copper kg/ capita was 5 times more in the US than in China. Steel tonnes/ capita was 3 times more in the US than in China. That means that there is still huge room for growth. I am sure the per capita ratios in India and Africa are even higher. The developing market demand is still coming.


Even though the amount allocated has declined they still plan on spending $16.2bn on capital and exploration. The money not spent should filter through as a healthy dividend. They trade at 13 times earnings and we are still very comfortable to be adding at these levels.