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BHP - BHP Group

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GG,
in my opinion, and after experience working with/for them: as long that the current top managemnet is in place (or a successor in the same vein) this is a machine to burn money: the waste of $, energy and goodwill within BHP is absolutely abysmal when seen from inside.
Obviously this is not enough to prevent a rally at one stage based on feelings, etc but when figures will have to talk, reality will be back..
my 2c worth only.
Now fully out, even for short trade
 

I agree frog.

The feedback I'm getting from within BHP at a local level, is that management needs to change.

It is being discussed from recent articles in the business press.

Meanwhile as I noted in the above chart, volume is lower in the last 12 months with a rise in the share price. My feeling is that there are not enough buyers, and sellers are holding in a hope of a change.

If the sellers come out on bad European or Chinese news, it may very well retreat quite quickly in price.

gg
 

I resurrected the BHP thread on the weekend, as a contact indicated to me something was afoot with the CEO.

I was unable to confirm so did not post that exact information hoping some silly bastard would post clarification.

I returned to the BHP thread today.

A day on which the CEO of one of the most important Australian companies had a change of CEO.

Number of posts today. None.

Number of posts since the weekend. None.

There is money to be made from going long or short on major ASX companies.

I doubt if anyone on ASF will read this.

gg
 
I suspect the departure of Kloppers will have about the same effect as the firing of Albanese at RIO, the rest of the boards remain intact and I dont expect to see any change.

One thing I have learnt by working for these large multi national mining companies is that they make public servants and governments look efficient and competent. If it were not for the incredible profit involved in digging holes and loading them on ships they would go broke in a flash.

I suspect there is some formula that could calculate organisational dysfunction and it would be proportional to the size of the company!

Anyway despite their incompetence I suspect they will continue to make enough squillions to provide a satisfactory dividend to the shareholders.
 
Ves said:
+1 It's a pity I don't have anything remarkably interesting to say other than I find BHP impossible to value (as remarked in another thread).
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You are a dyte Ves.

I couldn't give a stuff about all that.

I'm only interested in making money out of the share price.

And BHP can be more volatile than..................whispers..................PE N.

gg
 
Garpal Gumnut said:
You are a dyte Ves.
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Not a problem. I'm just not into PE expansion and / or technical analysis. My ability to beat everyone who is in that game is very, very limited.

I don't know anything about PEN other than it is something I can write with.
 
Ves said:
Not a problem. I'm just not into PE expansion and / or technical analysis. My ability to beat everyone who is in that game is very, very limited.

I don't know anything about PEN other than it is something I can write with.
Click to expand...

lol

A wise knowledge on poor ole PEN.

BHP in my belief will fall.

Abysmal results on capital spent since 2006 as per Montgomery Investments, I heard on my Bose in the Arnage this afternoon via my ABC.

The chart as I posted above looks set for a retracement.

gg
 
GG,

I am looking for an entry in to BHP, in one of my forays in to the market this year.

Such a mining titan gets scant comment on ASF.

The lack of volume on the increase in price over the last twelve months makes me wary about entering.
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The chart as I posted above looks set for a retracement.
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Have you changed your mind about this, or are you looking to buy on the retracement?, or are you thinking of shorting?

I made a little bit on the current rise from $33, sold way too early. I would be looking for another long entry at about that same level if reached in the July/August timeframe.

I certainly agree there is not enough discussion on the majors, most stock discussion seems to revolve around pennydreadfuls that if you invested more than 2 bob in would influence the price.
 

Thanks brty,

I am thinking of buying.

But on a retracement.

I am riding the bull at present on other stocks.

I do not short. I am no good at it.

I am however prescient of May 2013, when as I have posted on other threads I reckon we will face another sharp fall to close to GFC levels. Just my gut.

I will watch and wait for the retracement levels on BHP, a blow off, and a recovery and then enter, $35, $30, $25, $20 etc whatever.

If I am wrong after May, I would consider an entry north of $40.

gg
 
brty said:
I made a little bit on the current rise from $33, sold way too early. I would be looking for another long entry at about that same level if reached in the July/August timeframe.
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I've held BHP at various times but never made any really decent money out of it. Probably entirely my fault but unless it does something more inspiring than of recent times, I won't be buying it again.

gg, of the whole forum, you - along with nulla nulla - probably do the most to promote discussion on the bigger stocks, so thank you to you both. Nulla you put up some good charts with good comments.
I expect many do read these posts and incorporate the info offered into our thinking, but have difficulty in adding anything that's not already been pretty well covered. eg today there has been the same level of coverage of Mr Kloppers' resignation across the ABC as was provided when Tom Albanese resigned. So, not much more to say.

I certainly agree there is not enough discussion on the majors, most stock discussion seems to revolve around pennydreadfuls that if you invested more than 2 bob in would influence the price.
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+1. Strongly agree. However, I couldn't care less if people want to discuss these stocks. I don't find it difficult to just ignore the threads and don't feel obliged to lambast people who do get something out of them.
 
Ves said:
Not a problem. I'm just not into PE expansion and / or technical analysis. My ability to beat everyone who is in that game is very, very limited.

I don't know anything about PEN other than it is something I can write with.
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$120b (that's an eye watering amount!) invested in the business over the last 10 years. If margins head back to 10-12% then that's going to look like a lot of money wasted. BHP seems to have always been like this.
 
McLovin said:
$120b (that's an eye watering amount!) invested in the business over the last 10 years. If margins head back to 10-12% then that's going to look like a lot of money wasted. BHP seems to have always been like this.
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That's the problem with commodity markets. Equilibrium is established only when price equals marginal cost. When demand shifts upwards, companies have to make large capital investments to reduce and flatten out their marginal cost curves at higher volumes because the only way to make a profit in a commodity market is to produce at a lower marginal cost than your competition.

Margins will revert to mean but earnings will reflect higher volumes. That's pretty much what Kloppers told investors to expect last year.

Some are saying that energy is the next main opportunity for BHP which might explain why they chose Mackenzie as the next boss - given his background in oil and petrochemicals.
 
tinhat said:
Margins will revert to mean but earnings will reflect higher volumes. That's pretty much what Kloppers told investors to expect last year.
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Where do you think that will put them? If margins mean revert on the current volume then will they be earning about ~$10b/year, right?
 
McLovin said:
Where do you think that will put them? If margins mean revert on the current volume then will they be earning about ~$10b/year, right?
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Hey Muhammad

I really haven't looked at the figures for BHP and I don't know what they are in terms of what returns they make. I should have said prices will mean revert - that is what I meant and that is what Kloppers said last year. That said, my belief still is that price will equal marginal cost - but that is the industry marginal cost at which demand is exhausted. So the only way to make a profit at all in a commodity market is to be lower on the cost curve than the person who is still able to break-even at the prevailing market price. Well, that's what I remember of my microeconomics lectures from twenty-five plus years ago.

That is the conundrum, as demand increases and pushes production levels up the short term cost curve, firms have to invest in new capacity to flatten and push out the cost curve but this leads to a rush of investment in capacity because the only way a firm can maintain profitability is to be lower on the cost curve than the highest cost producer that can still produce at a price the market is willing to pay for one more unit of the commodity (the marginal price).

I'm talking here about bulk commodities like iron ore and coal but I guess the same applies oil, gas and aluminium? Here is a relevant slide from the BHP presentation:



Which makes me think, the whole notion of a super profits tax is a bit flawed really for commodity markets. A super-profit price boom only seems to come along once in a generation. It's a temporary phenomenon that will occur when demand grows to the degree that marginal production costs are pushed high enough up the cost curve that a step-wise investment cycle in capacity and infrastructure is required. I suspect the river has moved on in terms of being able to extract extra tax from super-profits in iron ore and coal. The super-profit boom is over (as Martin Ferguson has been trying to explain to the unions).

If I were to follow my own logic then the there can only be one iron ore producer that is worth investing in and that is the one with the lowest and flattest marginal cost base, which, if I am not mistaken is Rio Tinto right?

For the time being I suspect the market will be looking to see what value BHP can extract from its US energy interests.

In the long term, the one metal that has the most constrained supply is copper. I suspect that at some stage there will be a business case for BHP to proceed with the Olympic Dam mega-project and that will require a whole new wave of capital investment.

Slide 35 from the BHP presentation is interesting. The only three areas currently experiencing very strong EBIT margins are iron ore, petroleum and base metals.

I do start to wonder, when I think about it, whether a bulk commodities miner is the sort of thing I want to invest in for the long term though. Slide 34 lays it out quite bare. A US$1/t change in the iron ore price impacts net profit after tax by US$110 million. So a US$10 change in the iron ore price translates into a US$1.1 billion change to net profit after tax. Hopefully the AUD is at the peak of its valuation cycle.

So, to answer your question, just to analyse the iron ore business and assuming that all other businesses perform as they did this first half. First half 2012 sales of iron ore were 91 million tonnes and the reported revenue was $9.166 billion, which works out to an average price per tonne of $100.73 Which leads to the overwhelming question of what price forecast to use for iron ore? What is the marginal cost of production at which demand will be exhausted. Some say it is what the Chinese producers marginal cost is which is said to be $150. I think for Fortescue it is somewhere around the $110 mark (but I don't really know).

So, if underlying profit before tax for the first half was $4.2 billion, assuming all other things remaining equal, then projecting the profitability of BHP based soley on iron ore price scenarios:

Iron Ore Price $/t, Net Profit ($billion)
100, 8.4
110, 9.5
120, 10.6
130, 11.7
140, 12.8
150, 13.9

The figures above extrapolate the last half's iron ore sales to assume annual sales of 180 million tonnes. Assuming that iron ore production reaches the 220 mtpa forecast for 2015 and assuming a cost of production of $50 per tonne (using the current reported margin of approx 50% against the average price achieved in the last half of $100):

Iron Ore Price $/t, Net Profit ($billion)
100, 10.4
110, 11.9
120, 13.4
130, 14.9
140, 16.4
150, 17.9

But there are professional people who do this sort of thing for a living. I don't really know what I am doing in throwing all these numbers around! I am sure this analysis is wildly inadequate and inaccurate. Shoot me down or throw up some alternative analysis.
 
Nice analysis tinny.

tinhat said:
If I were to follow my own logic then the there can only be one iron ore producer that is worth investing in and that is the one with the lowest and flattest marginal cost base, which, if I am not mistaken is Rio Tinto right?
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Yeah, I think that's right.

tinhat said:
Which leads to the overwhelming question of what price forecast to use for iron ore?
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Ahh...This is the inherently dodgy part of any commodity business, IMO.
 
I just had a quick look at FMG's results and, using the figures given, Their average price received over the half was $96/t with EBITA of US$1,134 million and 35.7 million tonnes, that represents a total cost of US$68 per tonne. Haha - I just realised they give that figure in slide 12 of their presentation.
 
BHP continues to fall.

$37.5 is a new resistance point, and I see nothing in the short term to indicate it will not continue lower, perhaps to $35 or $30

A ten day , 15 min chart shows the failure to progress to $40 and above, and the new resistance in the short term.



gg
 
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