BHP Billiton : “Where Opportunity Meets Preparation”

Every now and then the market wakes me up with good news.  Since BHP Billiton, the No. 1 mining company in the world, is based in Australia – it did the opposite and tucked me into bed after announcing another record set of earnings and a $10 billion share buyback.  Yes, that’s 10 billion – with a “b.”   This is in addition to a previously announced $3 billion.  Not only did it announce the buyback, but it increased its dividend for the 10th consecutive time.  It doesn’t stop there.  The company has also earmarked $17.5 billion for 29 new projects worldwide and still has cash for potential acquisitions.  Wow, this company is printing money faster than Ben Bernanke. 

BHP’s CEO, Chip Goodyear, stated during its conference call that this is simply “a case where opportunity meets preparation.”  The emerging markets need “stuff” to industrialize like copper, nickel and iron ore and BHP is one of the best at providing it.  Per their website, BHP is

  • A leading supplier of core steelmaking raw materials
  • World’s second largest copper producer
  • World’s second largest exporter of energy coal
  • World’s third largest producer of nickel metal
  • World’s fourth largest producer of uranium
  • World’s sixth largest producer of aluminium
  • A significant producer of oil and gas
  • Have substantial interests is diamonds, silver and titanium minerals.

BHP is a global company with operations in approximately 25 countries.  However, having significant assets in Australia provides strategic benefits in doing business with China.  Currently 18%  of its revenue comes from sales to China. 

Goodyear was quite confident that a slow down in the U.S. would be offset by growth in the emerging markets.  He gave an example of a consumer in a country with GDP per capita greater than $15,000.  The incremental copper required as that person upgrades from a Chevrolet to Mercedes is not significant.  However, when a consumer moves from a bicycle to a motor cycle to a car, as the Chinese are now doing, the incremental demand is quite substantial.  China’s GDP is expected to reach US$15,000 per capita around 2015 (source: World Bank, OECD, GDP at Purchasing Power Parity, CRU).

Although the main stream media still promotes the old saying, that when the U.S. sneezes the entire world catches a cold.  Goodyear’s comments remind me – I hate to say it, but it is different this time.  The world is undergoing an industrialization larger and broader than ever in its history.  The people of countries such as China, India, Russia, Brazil and many others desire the basic luxuries of developed countries like single family homes and cars.  What’s different this time – is that those countries are committing the resources to enable such a standard of living. 

This also reminds me why I spend twice as much time listening and reading non-main stream media than the mainstream news.  Matter of fact, I would rather listen to a chalk board being scratched than to listen to Cramer.  Some of my favorites sources can be found here.  Let me get off my soapbox and back to BHP.

My regular readers know that I own BHP in three portfolios: Fab Four, Big Build-Out, and Real Money.  BHP closed up 5.9% in Australia and is up nearly 6% in early New York trading.


It’s amazing how you never own enough of a stock that goes up, but always too much of one that goes down.  That’s my story with BHP.

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