BHP - BHP Group

[rederob]

BSD

On what basis would you support your assertion that BHP is a price maker?
With regards to the 40% fall in price, yes, I can see that happening, it is definitely in the realms of possibility for me.

jog on
d998
http://grantmacdonald.blog.co.nz/

ducati can make the improbable possible!
Mind you, don't ask him to commit to it: He would simply prefer you to put up some numbers, and then you have to interpret his response to your post.
What ducati is possibly not seeing is the the price relativities - financial 2006 year to date versus financial 2007.
Apart from oil, BHP will strongly outperform its 2006 result on continuation of trend.

 

[michael_selway]

ducati can make the improbable possible!
Mind you, don't ask him to commit to it: He would simply prefer you to put up some numbers, and then you have to interpret his response to your post.
What ducati is possibly not seeing is the the price relativities - financial 2006 year to date versus financial 2007.
Apart from oil, BHP will strongly outperform its 2006 result on continuation of trend.

Red you have to look at FY 2008, we are already in FY 2007

thx

MS

 

[rederob]

Red you have to look at FY 2008, we are already in FY 2007

thx

MS

MS
On the contrary if you read my post.
My point is that on known financial year to date prices (ie July to November 2006) of BHP's commodities, compared to last year (July to Nov 2005), BHP is this year making a heck of a lot more.

 

[nizar]

MS
On the contrary if you read my post.
My point is that on known financial year to date prices (ie July to November 2006) of BHP's commodities, compared to last year (July to Nov 2005), BHP is this year making a heck of a lot more.

Rederob,

Just wanted to know your view about why BHP didnt hedge copper when it was in the high -3s ?

After all, it is them that will bring on the new supply.

Obviously the sp wouldve suffered if they announced such a decision, but astute management focus on profits, not the share price, and surely such a move wouldve resulted in higher profits (and im not just saying this in hindsight, from near the beginning of the year it was clear that the supply/demand fundamentals for copper arent that great as new supply is coming online relatively soon)

 

[BSD]

Rederob,

Just wanted to know your view about why BHP didnt hedge copper when it was in the high -3s ?

After all, it is them that will bring on the new supply.

Obviously the sp wouldve suffered if they announced such a decision, but astute management focus on profits, not the share price, and surely such a move wouldve resulted in higher profits (and im not just saying this in hindsight, from near the beginning of the year it was clear that the supply/demand fundamentals for copper arent that great as new supply is coming online relatively soon)

The level of backwardation prevailing in the copper markets (particularly when spot peaked) was extreme and I would guess that any hedging put in place in the last 12 months would actually be underwater as the spot price has prevailed above $3.10

BHP believes their level of diversification brings a natural hedge and they are not in the business of hedging production. That said, their view on copper prices remains bullish and would appear to be another strong vote of co0nfidence in the persistancy of the cycle.


BHP are not bringing huge amounts of new supply onto the market in the near term.

Spence with an extra 200,000 Cu t/pa is the best

Olympic Dam expansion is not due for completion until next decade

Ravensthorpe hopelessly delayed and overbudget


BHP only spent $50m last quarter on exploration

They will remain acquisitive with very lazy balance sheet. Petroleum appears to be the key focus - rumours of $10bnUS kitty to spend shows further belief in high oil prices prevailing, negating the need for hedging.

 

[Knobby22]

Three points:

The profits for next financial year, already half over, will give a PE rating of 8.8. This is not expensive considering:

- BHP is not only a minerals company, it is also an energy company with big oil. gas and uranium interests. The uranium mine is expanding. This should be considered carefully when evaluationg the company.

- Second, this company has a lot of advantages over smaller mining companies. When the minerals downturn eventuates, then they will be able to buy the better companies at a good price. Look at WMC. They are able to buy technologies and control them. Look at their interest in APG (I have a good holding of that one), I would not be surprised to see a takeover offer.
They have the financial strength to take advantage of opportunities profitably and finally they have the ability to generate some blue sky.

- Thirdly, if the company did get devalued somewhat more by short term investing then you may see an offer by China. (Peter Costello had a big chat with the Chinese and it is believed Woodside was discussed at length, I would not be surprised if BHP was not also discussed).


I have backed my judgement by buying a reasonable amount of shares at just over $25.

Jogging is bad for your health.

K22

 

[haemitite]

Rederob,

Just wanted to know your view about why BHP didnt hedge copper when it was in the high -3s ?

After all, it is them that will bring on the new supply.

Obviously the sp wouldve suffered if they announced such a decision, but astute management focus on profits, not the share price, and surely such a move wouldve resulted in higher profits (and im not just saying this in hindsight, from near the beginning of the year it was clear that the supply/demand fundamentals for copper arent that great as new supply is coming online relatively soon)

For the same reason they didn't hedge when it was at $2/lb

Mix of commodities and forex exposure provides significant natural hedging which BHP monitor with their cashflow at risk model

And of course there is a strong argument that shareholders should be able to take their own directional action on price risk, and not have their investment leverage obfuscated by companies using derivitaives

 

[mrlava]

will we see BHP hit $24 again....

who will margin lend.... or are they worth margin lending if they dip to 25.60ish...

I hope you are right, I have my buy order in at $24.50. If you look at the price over the last 12 months, it seems to fluctuate rather consistently.

 

[mrlava]

I realise after reading my post again I came off being a little harsh. I am not anti chart. I use charts to help with my entry and exit but rely on the fundamentals for it to make sense.

Hi, what charts do you use if you don't mind me asking? I am shopping around for some. Cheers.

 

[wayneL]

The level of backwardation prevailing in the copper markets...

BSD

What backwardation tells investors and traders is still somewhat controversial. (More controversial than indicated in the attached article)

To mention it with regards to the future of Copper prices and BHP only serves to confuse. It is about as predictive as the MACD.

Cheers

 

[ducati916]

et al

Backwardation occurs when demand is higher in the near future.
Therefore, coming from a period of high[er] demand, backwardation implies a falling demand into the future.

This would tie in with slowing US demand from a number of industries and reflects slowing US consumer spending.

jog on
d998

 

[TheRage]

Hi, what charts do you use if you don't mind me asking? I am shopping around for some. Cheers.

I won't recommend any particular chart as there are many opinions from people with greater technical expertise than I who could steer you toward a good program. I use charts that I created in a visual basic format. All I have to do is download price data off of YAhoo finance and presto put it into my models and several charts are created. My charting is no where near as sophisticated as many of the day traders but it doesn't need to be as I am an investor. Often I have made my mind up on buying a share long before I analyse it with a chart. It is great news if my charts tell me what the fundamentals are already telling me. However if they don't this doesn't stop me necessarily from buying. Often my decision to buy can be swayed by talking with the management of the company and putting tough questions to them and seeing how they react. I don't need a psychology major to know when I am being lied to and this can play a strong criteria also in my investing decision.

 

[ducati916]

Rage

Often my decision to buy can be swayed by talking with the management of the company and putting tough questions to them and seeing how they react. I don't need a psychology major to know when I am being lied to and this can play a strong criteria also in my investing decision.

What tough questions would you ask?
What type of reaction would place you on guard?
How would you decide that you are being lied too?

jog on
d998

 

[TheRage]

Rage



What tough questions would you ask?
What type of reaction would place you on guard?
How would you decide that you are being lied too?

jog on
d998

This is an example of question that I have asked a company just this week.

Q1: Why was bad earnings news released at the same time as an acquistion.
Q2: How come calculations on share % ownership being written on script is being worked out on the final total not on the current shares outstanding.

In relation to reactions that put me on guard, usually if there is any pausing that is then followed by a answer that totally spins my question around until I am so confused I forgot why I asked it well that puts me on gaurd.

Sometimes I am also on gaurd from a particular tone in a voice. My wife has taught me to become aware of tones as a way of undertstanding her better.

As to how I would decide whether I am being lied to well I will probably use all of the subtle nuances from the conversation and then use them and my intuition to make up my mind from that. I may not always be right but I have found from experience I have a reasonably good strike rate. Anyway I am not so much interested in the liar as the person who is honest. How do I know they are honest I guess I don't but when people are telling me bad news honestly I tend to believe them. An example of this relates to the questions above. I further inquired to the managing director What is the rationalisation behind the acquisiton. He did not tell me that the purchase was earnings accretive or was a good organic fit blah blah blah, he told me that because thier business was facing stiff competition from companies taking away their business the company in question needed to secure an income stream, which is five years gauranteed to offset any short fall in their other businesses. I tended to believe him as he has no reason to tell me bad news as a lie. By the way after this conversation I realised the company in question was not the monopoly I thought it was and probably is a poor business with great management. So I will hang in there with them but if management changes so will my ownership in that company.

 

[ducati916]

Rage

Hey, thank's for answering my three questions.

jog on
d998

 

[TheRage]

No problems.

 

[Sean K]

Had an ok day today, short term looks to be moving up, but still a long way to go to get out of the downwards/sideways trend. Neds to get to the blue circle I reckon to be heading up, although looks like there is a slight change in the momentum....

I'm not topping up yet.

Even though it's on a pe of about minus 35, the market is still not convinced about the Chindiapanaiwanporesal story.

 

[mmmmining]

Had an ok day today, short term looks to be moving up, but still a long way to go to get out of the downwards/sideways trend. Neds to get to the blue circle I reckon to be heading up, although looks like there is a slight change in the momentum....

I'm not topping up yet.

Even though it's on a pe of about minus 35, the market is still not convinced about the Chindiapanaiwanporesal story.

Agree, the chart is not looking perfectly. But I am buying. I strongly believe the big end of the resource will play catch up game. and secondly, I strongly believe soon or later LBO will do something about BHP.

One day those fat cats will say, wait a minute, why not buy these big resource stocks for PE like 10s, with load of cash, and wonderful long life asset, Sell a couple of asset to China for $100 billion dollars, such as the oil, and uranium, and the rest are considered profits, dividends, commissions, bonus, whatever you want to call it. And flood the market with 100+ Chihuahuas (James Dines term) with breed of copper, zinc, nickel, energy coal, metallurgical coal, alumina, diamond, iron ore, silver, gold, manganese, titanium, mineral sands, etc.

 

[ducati916]

Agree, the chart is not looking perfectly. But I am buying. I strongly believe the big end of the resource will play catch up game. and secondly, I strongly believe soon or later LBO will do something about BHP.

One day those fat cats will say, wait a minute, why not buy these big resource stocks for PE like 10s, with load of cash, and wonderful long life asset,

P/E's for commodity based stocks are not that straightforward. If the P/E is low to cyclically high earnings, that is most definitely not the same as a low P/E due to a low price with cyclically low earnings.

BHP is the former, and definitely not the latter. Therefore far from being a bargain, BHP is overvalued at this seemingly low P/E. Here is a longer chart based view for those who think the boat is just leaving, and in point of fact is already well out to sea.

jog on
d998

 

[Sean K]

P/E's for commodity based stocks are not that straightforward. If the P/E is low to cyclically high earnings, that is most definitely not the same as a low P/E due to a low price with cyclically low earnings.

BHP is the former, and definitely not the latter. Therefore far from being a bargain, BHP is overvalued at this seemingly low P/E. Here is a longer chart based view for those who think the boat is just leaving, and in point of fact is already well out to sea.

jog on
d998

Ducati, are all your assumptions on the value of BHP based on falling demand and falling prices in line with the cycle? And if so, what if you are wrong? What if demand continues to outweigh supply for some years to come? What if Chindia (and other growing nations - there's plenty out there) keep growing at 10% ish a year for another 10 years? Won't this very basic premise continue to support strong commodity prices into the future?

Also, not sure what your point is with the chart. Last few bars indicate higher low and higher high, so perhaps it's continuing the trend up. Perhaps you are just referring to the fact it's been going up for 4 years. Probably 10 more to go I reckon.