BHP - BHP Group

[trendsta]

Hi all,

Any ideas when iron ore contracts for 08/09 are to be negotiated??

There are murmurs that prices may increase 20-35% (UBS, Mac Bank etc). It will be a boon for BHP and RIO since most analysts were expecting a drop of 5% at start-mid of this year, for 2008..

 

[alankew]

This might help things along tomorrow,from what i have read online its at the top end of forecasts http://www.smh.com.au/news/Business...-16b-net-profit/2007/08/22/1187462338185.html

 

[rederob]

BHP down currently in the US 8.15%

The point that I made is that the price of BHP is currently a speculative price, which means to make money in this name, you have to actively TRADE the stock.

Purchasing for an investment, that is to hold over a longer time period is fraught with problems due to the huge speculative pricing.

This is what was being advocated by many.

If you want simply to trade it, fine, no valuation required.

jog on
d998

ducati
You really are a numskull!
Every stock on the ASX has a speculative component using your methodologies.
The overriding issue relates to what price BHP is, and what direction it is moving in, if you (perhaps not you personally given your lacklustre record on this equity) are going to put money on it.
The likelihood of BHP reclaiming $40 is strong given its stellar profit - a profit that it could beat again next year given the tightness of the commodities it sells to market.
Your remarks about BHP's long term potential encapsulate your blindness to "value". BHP is sitting on the world's biggest energy pit at Olympic Dam, and its in no hurry to commit to digging it out for an energy starved world too soon.
Additionally, BHP is strongly leveraged into gas and oil assets, and has an exploration budget to die for.
The valuable lesson you offer to readers is the capacity you have to sway them to your view.
Over several years now these remain burn offerings.
How about buttering them up?

 

[ducati916]

ducati
You really are a numskull!
Every stock on the ASX has a speculative component using your methodologies.
The overriding issue relates to what price BHP is, and what direction it is moving in, if you (perhaps not you personally given your lacklustre record on this equity) are going to put money on it.
The likelihood of BHP reclaiming $40 is strong given its stellar profit - a profit that it could beat again next year given the tightness of the commodities it sells to market.
Your remarks about BHP's long term potential encapsulate your blindness to "value". BHP is sitting on the world's biggest energy pit at Olympic Dam, and its in no hurry to commit to digging it out for an energy starved world too soon.
Additionally, BHP is strongly leveraged into gas and oil assets, and has an exploration budget to die for.
The valuable lesson you offer to readers is the capacity you have to sway them to your view.
Over several years now these remain burn offerings.
How about buttering them up?

*Every ASX stock has a speculative component.
While I haven't looked at every stock, 5yrs of a bull market does place speculative valuations on the majority of stocks, so in essence, yes.

*Direction [fluctuations]
Not what I have been discussing. I am discussing it's investment merit and value.

*Regarding it's "Profits"

Revenue for the year climbed 21 percent to $47.47 billion from $39.110 billion a year earlier, the company said.

BHP said higher prices boosted earnings for the year by $7.1 billion and higher sales volumes added $438 million, more than offsetting the $859 million that rising costs shaved from earnings.

So if we take Revenues of $47.47 and subtract the contribution made by higher prices we come to $40.37 Billion which is a 3.2% increase in Revenues.

Thus “demand” from a year on year may have in point of fact fallen. I’ll find the financial statements later and check.

Rising costs are given short shrift in the article.

*Strongly levered to Oil/Gas
Dangerous place to be long term, good short term.

*Olympic Dam.
I am assuming you are talking about uranium.
Two issues;
First, it is speculative to assume the world will go nuclear.
Second, assume that they do, France has moved the technology forward and can now re-cycle "spent" uranium, thus the market price for this commodity will fall based on increased supply.

*numskull
Apart from mis-spelling the word, does this make you feel better for your hideous call on gold. I've got so many gold bars in my garage waiting for the big run, I can't even park my bike in there!

jog on
d998

 

[rederob]

ducati
Your efforts on BHP make you a "numskull" whichever we you choose to read or spell it - I don't think its meaning is lost on the average reader, let alone those that actually can spell.
Trot out all the facts and figures you like to confuse readers, and then compare the share price of company today to its price, say, 10 years ago; 400% profit is not to bad for a stock you believe to have no investment merit or value.
And then you tack on your inability to understand the role that energy plays in today's world, or at least your inability to understand that demand for finite resources will push up the prices relentlessly.
Your concepts of value are askew, except perhaps from the perspective of what you can glean from a set of books.

 

[theasxgorilla]

Rederob, you're playing the ball and man...the preference would be if you continued to play the ball.

Thanks,

ASX.G

 

[rederob]

Rederob, you're playing the ball and man...the preference would be if you continued to play the ball.

Thanks,

ASX.G

Cheers
In this case the man needs to be played, or pulled off the field.
Seeing the moderators have no problems with the stupidity of ducati on this stock, I'll keep pointing out what he's up to.
By the way, I did read the entire thread yesterday - my view is well supported by the posts.

 

[vishalt]

ducati why do you care about what he says about the stock?

anyone who's in BHP Billiton is generating delicious returns (unless they only bought at the top). Bears will always keep whinging and crying - but in real-time (NOW) the bulls & people buying are actually making money, money generated from stocks (in this case BHP) says a hell of a lot more than any opinion ever could.

also can i just say: while the bears have been speculating since 2003 about particular stocks that are going to go down the drain, or the stock market poised for a crash - the bulls have been making money for almost 4 years now, so until something bad happens in the case of BHP or the stock market, we'll keep on laughing all the way to the bank.

thanks!

 

[wayneL]

Cheers
In this case the man needs to be played, or pulled off the field.
Seeing the moderators have no problems with the stupidity of ducati on this stock, I'll keep pointing out what he's up to.

Rubbish Rederob,

Everyone is entitled to post their analysis without being insulted. Please, take a chill pill.

 

[rederob]

Rubbish Rederob,

Everyone is entitled to post their analysis without being insulted. Please, take a chill pill.

Wayne.
Your emotive tone is unbecoming.

It is unfortunate that one who posts "optimistically" gets accused of ramping, and needs to justify their stance or risk a sin binning.
The opposite should be equally upheld, should it not?
In the case of ducati's posts on BHP, what perhaps fools some as serious or even deep and meaningful analysis, is really nothing of the kind.
His almost throw-away lines in his most recent post are classic examples:

*Strongly levered to Oil/Gas
Dangerous place to be long term, good short term.

*Olympic Dam.
I am assuming you are talking about uranium.
Two issues;
First, it is speculative to assume the world will go nuclear.
Second, assume that they do, France has moved the technology forward and can now re-cycle "spent" uranium, thus the market price for this commodity will fall based on increased supply.

Why would oil/gas be good short term and not long term?
They could be both, but industry consensus - verifiable through forward cost curves - suggests both are excellent long term (ie 3 year plus) investments.

Next are his 2 points about uranium.
First, it is fanciful to suggest there is "speculation" about the world going nuclear. There are about 440 operating power plants worldwide, while another 50 or so are in the construction/permitting pipeline. Hundreds more are envisaged, with even our PM indicating we should hold a plebiscite on where nuclear plants would be located in OZ.
Secondly, the "re-cycling" that France is doing (along with the US, Japan and Russia) can return about 5% back to market supply. That is something of a pittance given the odd 40% of secondary uranium already in use by industry.

Let's go back even further now to examine ducati's preference to by BHP if it represented "value" against his criteria. Ideally ducati would buy if BHP if it hit the single digit range - at least a dollar value less than $12 per share.
ducati's logic would have us believe that at such a price the "speculative" element of BHP's price would be removed, so one could expect to be buying a fair-priced, good value company.
In fact there is no logic at all to this proposition. If BHP's share price fell back to around $12 there would be operating divisions of the company incapable of turning a profit: More so now due to the escalating costs of production, which ducati actually noticed was recently a matter given "short shrift".
So whatever "value" might be arbitrarily ascribed to the stock at such a low price, the market as a whole will be marking it down. One would only be buying BHP on the speculative proposition that the commodity cycle would again turn up. "Cycle-timing" in the commodities arena is not a cake walk because a diversified miner - as is BHP - will have its various basket of goods peaking and waning at different times, typically across many years.
Thus, if BHP were to decline to ducati's "value" proposition, there is a strong likelihood that buying at that price could confine one to many years of little or negative return on investment until the next upcycle.

Apparently if one posts "analysis", no matter how bad, they deserve not to be insulted.
No?
Then they deserve to have their posts removed, or edited accordingly.
ducati may be a protected species in the minds of some.
In my view his "protectors" are equally likely to be numskulls duped into a misguided view that copious fact and figures, no matter how disjointed and disconnected from reality, should be deemed credible and acceptable.

 

[theasxgorilla]

Apparently if one posts "analysis", no matter how bad, they deserve not to be insulted.
No?

Rederob,

Your critique of the analysis is fair play. Why didn't you write this in the first place?

The rules are the same for all. Please play by them.

ASX.G

 

[rederob]

Rederob,

Your critique of the analysis is fair play. Why didn't you write this in the first place?

The rules are the same for all. Please play by them.

ASX.G

\
The rules are not the same for all.
Moderators are quick to come down on "ramping".
Why are they not so quick to come down on "de-ramping", or whatever opposite word describes a practice of debasing an equity using a similar degree of illogic?
A clever person would be one who was able to use the information available to them for their own advantage: In this case it would imply using it to trade BHP shares - long or short.
I invest long-term in BHP for reasons I state from time to time.
On the weight of evidence in this thread it would be difficult to consider ducati's contributions as constructive towards trading or investing - possibly neither of which he indulges via BHP if we are to believe what he has posted.
In fact, his calls of BHP gloom and doom are so removed from reality that it beggars belief.
But don't call him stupid or you get a posting infraction - in my case its infraction number 4.
Of course there is a massive difference in saying "nonsense", rather than "stupid", despite there being no difference in the inference.
I suggest moderators rein-in posters that purport reason without substantiation.
But I suspect that is too hard.

It seems we need to say the weight of evidence in relation to the analysis presented by ducati, when considered over the duration of this thread, and in conjunction with the relative movements in BHP's share price, provides ample suggestion of a derelicion of duty of care to ASF members and readers who might genuinely wish to be financially successful on the balance of probabilities that ducati's contibutions represented fair and reasonable assessments of BHP's merits as a listed equity on the ASX which is responsive to local and international market movements.

 

[Joe Blow]

The rules are not the same for all.
Moderators are quick to come down on "ramping".
Why are they not so quick to come down on "de-ramping", or whatever opposite word describes a practice of debasing an equity using a similar degree of illogic?

We do. Ramping is presenting an overly optimistic view of a stock without providing any evidence or analysis to back up their assertions. Downramping is presenting an overly negative view of a stock without supplying any evidence or analysis to support their case. Once some analysis of some sort is presented it is up to other ASF members to critique that analysis. The point that the mods and I have been making is that it is possible to critique someone's analysis without referring to them as an 'idiot', 'numbskull' or 'stupid'.

And this is what we expect of all ASF members. Play the ball, not the man. Attack the analysis and not the contributor.

I don't know how to make it any clearer.

 

[ducati916]

rederob

First off, apologies for the tardy reply, but I am currently serving jury duty.

Addressing the uranium issue;
*large investment required
*regulatory approval required
*public sentiment needs to be cultivated due to 3 Mile Island/Chernoble

All of the above problems [challenges] make the outcome currently speculative. The worlds largest energy consumer [US] still needs to embrace nuclear energy as a primary energy supply. Marginal energy users [Australia] are less critical.

While currently uranium re-cycling is not a major factor, should nuclear become a primary source of energy production worldwide, I suggest that re-cycling will become a much larger factor for the following 2 reasons

*price [cheaper]
*efficient [preferable] use of waste material [rather than burying waste]

Looking now at the Oil/Gas question; [primarily oil]
The production of oil has in all probability hit peak production, and we [world supply] are on a decline while "demand" via China is increasing.

Fields [Super-Giant, Giant] on production declines
Oseburg..............Norway
Brent..................North Sea
Gulfaks...............
Prudhoe..............Alaska
Slaughter............Texas
Romashkino..........
Forties................Texas
Samotlor..............Russia

There is also the speculation concerning Saudi Arabian fields;
Ghawar, Abqaiq, Safaniya, Berri, that they also are in point of fact on declining production.

Regarding BHP;
Investment values can increase over time [or decrease] thus they are dynamic. However, using my original analysis figures which I am quite comfortable with.

You persist in misquoting the context as this "helps" your bias.
The correct context is, should BHP ever trade in this valuation range during a bear market, BHP would become seriously undervalued and thus become a very safe investment due to the margin of safety provided between market price and tangible values.

As to whether the valuation would be correct [by the market] exactly my point, no it would not, thus a purchase would in all likelihood prove very profitable.

As regarding would BHP ever trade this low?
In a severe bear market, yes, it is entirely possible.
Should you buy a fully valued [overvalued] BHP at the top [or near] of a bull market? I say no, it represents a very speculative component in the valuation.

The escalating costs are important as they indicate poor efficiency. Low cost producers fall less in a downturn than high cost producers. [evidence if required]

Also, that BHP is running inventories lower and utilise FIFO accounting, exaggerates profits in the period where older inventory is sold in a period of rising prices.

This period has passed.
Prices are still high, but, margins are shrinking due to poor cost control and exhausted "old" inventory.
Evidence...in the statements, part of which I highlighted.

As regards the quality or lack thereof of my analysis.
You seem to feel that my analysis should be edited.
I take it that you feel qualified to do so.

I would ask, on what basis do you feel that you are qualified to undertake such a task?

jog on
d998

 

[ducati916]

First off, a thank-you to those highlighting the "personality" issue, appreciated.

Second, I have now had a look at the latest financials, to say there are some interesting "negatives" contained therein, would be an understatement.

When I have a little more time, I'll post the highlights.

jog on
d998

 

[rederob]

As regards the quality or lack thereof of my analysis.
You seem to feel that my analysis should be edited.
I take it that you feel qualified to do so.

I would ask, on what basis do you feel that you are qualified to undertake such a task?

Which particular aspect of your analysis is in keeping with the price trend of BHP?
Which aspects of your analysis will have led readers to making a well informed decision that would enable them to profitably trade BHP?
How is your "peak oil" contention (post above) in keeping with your view that oil/gas is a short term trade and not a good investment?
How is the ability to reprocess about 5% of spent nuclear fuel going to be a major factor supporting supply when the present shortfall is many times that, and the forecast shortfall in years to come - should Cigar Lake not come on line - suggests nuclear plants will be scouring the world for uranium or curbing energy output?
How is a "safe investment" one where there are meagre or no dividends, and nothing on the horizon to suggest the company will return to profitability within a timeframe that would have suggested ones financial input would have been rewarded by that decision?

 

[BSD]

Uranium and BHP?

Who cares?

BHP had a $7bn benefit to the bottom line from price hikes, but so what?

Their production growth is massive and all that money is being reinvested or reducing shares on issue.


Next year is all about OIL and production growth for BHP.

Atlantis (44%) - 200,000bbls of oil and 180 mcf of gas per day

Ghengis Khan (44%) - 55,000bbls of oil a day

Stybarrow (50%) - 80,000bbls of oil a day

Neptune (35%) - 50,000bbls of oil and 50mcf of gas per day

Zamzaza (38.5%) - 150mcf gas per day.

All coming into production next year...

Forgetting the gas, that adds up to 170,000 bbls a day for BHP or 62mbbls per annum

At $70bbl that is another $4bn of revenue for BHP to help replace the windfall from last year

It is amazing how much investing you can do in NPV positive projects with $15bn a year in cashflow.

Copper
Unless someone can point me to the massive copper mines coming into production next year, I think the rising demand from Asia will continue to sustain or increase the copper price.

Nickel
The nickel price may not hit the highs of last year again with the low grade (0.15%Ni) coming into profitabilty at the high prices and flooding the market - but BHP has a little project called Ravensthorpe coming online with 50,000tn of Ni production. That adds up to another $1bn of revenue at current prices.

Bear in mind that the ultra low grade Ni ore is not profitable at 'old' prices.

Iron Ore
It sounds like ~15% price increases are in the bag.

We'll have to wait another year for the China-bears to be right again in iron it appears.

Oh, and BHP is ramping production in coming years by 100's of million tonnes

RIO and BHP are unable to ramp up production sufficient to meet demand at the moment and remember that Fe prices are based on the high cost magnetites and not the heamitites of BHP and RIO.

Coking Coal

BHP made 31% less in coking coal last year. Guess which type of coal is already being contracted at 30% -50% higher prices already for the coming year?

Of course, BHP is expanding this production too.

Costs
To quote:
"Lowest rate of unit costs in three years - 3.6%"

http://bhpbilliton.com/bbContentRepository/bhpbFy07ResultsPresentation.pdf

What a well managed company. Great assets, great markets, great customers and a great secular bull market based on growing demand and dwindling supply.

Forget current volumes - BHP has $14bn of approved investment for 19 projects, 14 projects at feasibility stage for $7bn and $50bn at conceptual phase!

All of this expansion is into projects with 20% IRR forecasts using far lower prices than those prevailing now.


No mention of FIFO in the presentation, amazingly enough.

 

[GREENS]

BSD I have to say that is an excellent post and sums up the situation perfectly; we aren’t dealing decades away, but rather investing in the foreseeable future and BHP is a sound investment that will be highly profitable for at least the next couple of years with the quality projects it already operates combined with those coming online. If the long term commodity bull does lasts longer, well projects like Olympic Dam (expansion) will be a bonus and the profits to BHP will be mind blowing.

Ducati may in fact have the very long term value of BHP correct, but if you applied this to every stock it would be hard to make a sound profit because every stock is cyclical in some respect. Of course this commodity bull may not last for decades as Chip confidently stated, but the signs over the next 12-18 months are signalling that there are more good times to come. I will again assess my investment closer to this time as circumstances change but until then I am one happy BHP customer.

 

[It's Snake Pliskin]

Uranium and BHP?

Who cares?

BHP had a $7bn benefit to the bottom line from price hikes, but so what?

Their production growth is massive and all that money is being reinvested or reducing shares on issue.


Next year is all about OIL and production growth for BHP.

Atlantis (44%) - 200,000bbls of oil and 180 mcf of gas per day

Ghengis Khan (44%) - 55,000bbls of oil a day

Stybarrow (50%) - 80,000bbls of oil a day

Neptune (35%) - 50,000bbls of oil and 50mcf of gas per day

Zamzaza (38.5%) - 150mcf gas per day.

All coming into production next year...

Forgetting the gas, that adds up to 170,000 bbls a day for BHP or 62mbbls per annum

At $70bbl that is another $4bn of revenue for BHP to help replace the windfall from last year

It is amazing how much investing you can do in NPV positive projects with $15bn a year in cashflow.

Copper
Unless someone can point me to the massive copper mines coming into production next year, I think the rising demand from Asia will continue to sustain or increase the copper price.

Nickel
The nickel price may not hit the highs of last year again with the low grade (0.15%Ni) coming into profitabilty at the high prices and flooding the market - but BHP has a little project called Ravensthorpe coming online with 50,000tn of Ni production. That adds up to another $1bn of revenue at current prices.

Bear in mind that the ultra low grade Ni ore is not profitable at 'old' prices.

Iron Ore
It sounds like ~15% price increases are in the bag.

We'll have to wait another year for the China-bears to be right again in iron it appears.

Oh, and BHP is ramping production in coming years by 100's of million tonnes

RIO and BHP are unable to ramp up production sufficient to meet demand at the moment and remember that Fe prices are based on the high cost magnetites and not the heamitites of BHP and RIO.

Coking Coal

BHP made 31% less in coking coal last year. Guess which type of coal is already being contracted at 30% -50% higher prices already for the coming year?

Of course, BHP is expanding this production too.

Costs
To quote:
"Lowest rate of unit costs in three years - 3.6%"

http://bhpbilliton.com/bbContentRepository/bhpbFy07ResultsPresentation.pdf

What a well managed company. Great assets, great markets, great customers and a great secular bull market based on growing demand and dwindling supply.

Forget current volumes - BHP has $14bn of approved investment for 19 projects, 14 projects at feasibility stage for $7bn and $50bn at conceptual phase!

All of this expansion is into projects with 20% IRR forecasts using far lower prices than those prevailing now.


No mention of FIFO in the presentation, amazingly enough.

BSD,

I like to read posts from Ducati and yourself.

But how does it relate to price appreciation?

 

[ducati916]

Which particular aspect of your analysis is in keeping with the price trend of BHP?
Which aspects of your analysis will have led readers to making a well informed decision that would enable them to profitably trade BHP?
How is your "peak oil" contention (post above) in keeping with your view that oil/gas is a short term trade and not a good investment?
How is the ability to reprocess about 5% of spent nuclear fuel going to be a major factor supporting supply when the present shortfall is many times that, and the forecast shortfall in years to come - should Cigar Lake not come on line - suggests nuclear plants will be scouring the world for uranium or curbing energy output?
How is a "safe investment" one where there are meagre or no dividends, and nothing on the horizon to suggest the company will return to profitability within a timeframe that would have suggested ones financial input would have been rewarded by that decision?

rederob
*At low "Prices" value received is higher than at high "Prices"

*Not really interested in "TRADERS" more investors. You advocated that BHP @ circa $30+ was an investment. I disagree. It will definitely be a trade, any price has a "trade" potential. It does not possess investment merit at current prices $20+

*Peak oil. If my assertion is correct and peak production worldwide has happened, or imminent, then in the short term price could potentially rise and rise strongly. This will drive innovation and technology to surplant oil in one or more of it's current uses.

One of the largest consumers of oil, the automobile, already has a viable alternative...the electric car [there is a documentary film] This could be produced very quickly [12mths] and totally make oil [for automobiles] redundant.

This would have a significant effect on the demand curve for oil, thus driving prices lower.

Thus short-term, oil, is a good play. Longer term, oil will be potentially not so good.

*Again, 5% is the current figure, the technology is relatively new. This will improve, thus far greater % will be recycled [if required]

*Last comment....??
Relevance to BHP?

Now you see, I have indulged you and answered all of your questions.
You on the other hand answered my question not at all, just a flurry of diversionary questions.

So, I repeat;
What qualifications do you possess that would provide the ability to correct my asserted, errors, omissions, etc?

jog on
d998

PS. Should anyone be interested, the analysis of BHP's current financial results are on my blog. I shall post them here later today or tomorrow.