Resource stock recovery BHP/RIO

[Investor]

From the internet today:

Rio Tinto (RIO) is Macquarie’s preferred Australian iron ore producer due to the significant upside which is expected to be generated by the expansion of the Pilbara operation. With the company scheduled to host site visits to their iron ore operations in the first week of June, Macquarie detail their expectations for Rio Tinto's longer term expansion plans.

Macquarie expect RIO to attempt to maintain a dominant market position in iron ore. This will require the company to expand Hamersley Iron capacity by a further 22% to ~142mt by 2010 (from the current expansion program to 116mt) and Robe River capacity by a further 18% to ~65mt (from the current expansion program to 55mt).

Port and rail flexibility remain a key competitive advantage for Rio Tinto in the Pilbara, contributing to Macquarie’s expectation that the company will incur a significantly lower capital cost for planned capacity expansions relative to BHP Billiton.

Longer term, Macquarie estimate that Rio Tinto will incur a capital cost, per tonne of incremental annual capacity, of ~US$50/t, compared to BHP Billiton at US$72-85/t.

Macquarie retain their outperform recommendation on Rio Tinto (RIO) and view the current correction as an excellent entry opportunity to one of their preferred stocks.

Further, Rio Tinto is priced on only 10.1x forecast 2005 earnings and only 9.3x forecast 2006 earnings, the lowest earnings multiples Macquarie have historically observed. The quality of these earnings is also increasing, with the contribution from the iron ore division - with its locked in volumes and annually negotiated prices - expected to increase to ~50% of Rio Tinto's earnings in 2006.

Based on this view Macquarie hold a 12-month share price target of $50.00 - which represents over 18% upside from Friday’s closing price of $42.30.

 

[malh786]

A major hurdle for resources sector in the coming years is the shortage of skilled mining professionals - particularly mining engineers.

"Recent estimates from the mining industry show that at least 150 graduates a year are needed just to maintain the status quo. Recent figures in the US show that the entire continent graduated only 86 people in the area last year but industry there needs at least 300 a year just to cover retirements. " From The Australian - full article here

This is a problem that has been recognised in the industry for a number of years. Companies like RioTinto, BHP, Xstrata and Anglo have formed working groups to investigate minerals industry education around the globe. Report on this survey can be found here.

There are also some good articles and updates at the AusIMM website. http://www.ausimm.com/presentations/news.asp
Theres a lot of other articles etc which probably wont be of interest, but worth a look if you have the inclination.

Don't underestimate the value that even one skilled professional can add to a company's bottom line. Giants like BHP and RIO are fortunate that they have huge cash generating operations in the booming iron-ore and coal industry, so the effect is swallowed up and difficult to quantify. Often junior engineers have significant responsibilty in the day-to-day and short term mining operations. In some cases positions are filled by "non-qualified" personnel such as geologists, surveyors - even equipment operators! I also know of major operations having no (or very poor) medium - long term (1-5 years) mine plan/forecasts due to lack of professionals.
Now consider a small cap resource company that only has a small number of operating mines (maybe only one). One skilled professional mining engineer could potentially be the difference between this company operating at a profit or a loss.

I think I've said enough for now -esp. for a first post.
I'm also trying to keep it shorter than the Investor's epics! : [Investor - keep up the great work - a lot to digest, but great info nonetheless ]

 

[Investor]

... I'm also trying to keep it shorter than the Investor's epics!

When I get to my one-liners, my posts will be short.

Eg. Why is the world full of ignorance and indifference?

Answer: I don't know and I don't care.

 

[Mofra]

Now consider a small cap resource company that only has a small number of operating mines (maybe only one). One skilled professional mining engineer could potentially be the difference between this company operating at a profit or a loss.

I doubt anyone who has been following the FMG saga could disagree with that one mal!

The shortage of qualified professionals is another symptom of the boom - bust cycle of the resource industry. Another example is the infrastructure spending now being undertaken in various ports and rail links accross the country - many should be finished just in time for the end of the boom. Who says the government don't plan adequately past their next term? :

 

[Investor]

... Who says the government don't plan adequately past their next term? :

Classic. A round of applause.

 

[It's Snake Pliskin]

Have a look at this piece of news for BHP. Interesting times ahead.

 

[Investor]

Tina,

Am I missing something? Is there a missing news link on your post?

Anyway, here is something from Bloomberg.

May 26 (Bloomberg) -- Australian companies plan to increase capital spending as exporters such as BHP Billiton, the world's largest miner, and Rio Tinto Group expand mines and buy equipment to meet surging Chinese demand for commodities.

Businesses say they will spend A$48.36 billion ($36.9 billion) on investment in the year ending June 30, 2006, a 7.9 percent increase on what they forecast three months ago, the Australian Bureau of Statistics said in Sydney today. Companies also will spend 4.7 percent more in the year ending June 30 than previously forecast.

Increased investment may fuel growth in Australia's economy, the fifth-largest in the Asia-Pacific region, as consumer spending slows and home building declines. Central bank Governor Ian Macfarlane said in March that a lack of investment in infrastructure has caused bottlenecks in the mining and transport industries, crimping the nation's economic growth.

``Mining is a red-hot area for investment because of strong demand for commodities driven by China,'' Michael Blythe, chief economist at Commonwealth Bank of Australia, the nation's second- largest lender by assets, said in Sydney. ``Future spending plans look particularly encouraging and may start to allay the Reserve Bank's concerns.''

Australia's economic growth rate will probably accelerate to 3.4 percent in 2006 as business investment and exports increase, the Organization of Economic Cooperation and Development forecast this week. The Paris-based organization expects Australia's 2006 growth to outpace 3.3 percent growth in the U.S. economy, 1.7 percent in Japan and 2.4 percent in the U.K.

First-Quarter Decline

The statistics bureau survey is based on responses to a written poll of almost 8,000 businesses conducted in March and April.

Business investment unexpectedly declined 3.8 percent in the three months ended March 31 from the previous quarter. The median forecast in a Bloomberg News survey of 19 economists was for a 1.3 percent gain. Investment rose a revised 10.6 percent in the fourth quarter.

Damping investment in the first quarter, the Reserve Bank of Australia raised the overnight cash rate target to 5.5 percent, a four-year high, on March 2. Business confidence declined in the three months ended March 31, according to a closely watched survey of 1,200 companies by National Australia Bank Ltd., Australia's largest lender.

The Australian dollar bought 76.13 U.S. cents at 4:30 p.m. in Sydney from 76.42 cents immediately before the report was released. The yield on the 6.25 percent bond maturing April 2015 fell 2 basis points to 5.22 percent. A basis point is 0.01 percentage point.

Mines Expand

Increased spending by miners may spur a recovery in investment after the first-quarter's decline. BHP Billion and Rio Tinto Group, the third-largest miner, have posted record profits on surging commodity prices, driven by Chinese demand.

BHP Billiton and other Australian energy companies are spending A$10.1 billion in fiscal 2005, the most in six years, to expand production coal, copper and iron ore, according to the government's commodity forecasting bureau. Projects include Rio Tinto Group's A$1.25 billion expansion at Yandicoogina iron ore mine.

``You have seen the industry very rapidly try to respond to a shortage of iron ore,'' BHP Billiton Chief Executive Charles ``Chip'' Goodyear said at a conference in the Netherlands on May 11. ``It is certainly the case that the next several years will continue to be tight, but you are also seeing significant capacity expansion.''

 

[Mofra]

Investor,

Given your experience in assessing risk, obviously one risk to resources is a spike in the oil price increasing production & transportation/export costs. Do you believe BHP is as vulnerable to such a scenario (compared to othe rresouce companies) given their investments in oil, or would you say oil does not contribute enough to group earnings to provide any significant cusion?

Thanks in advance

 

[It's Snake Pliskin]

Tina,

Am I missing something? Is there a missing news link on your post?

Investor,

I'm sorry I must have forgotten to attach the link.

Anyway, it was the article about BHP in yeasterdays Sydney Morning Herald, or , the Melbourne age. the problems in Peru and the court case.

Sorry.

 

[Investor]

Investor,

Given your experience in assessing risk, obviously one risk to resources is a spike in the oil price increasing production & transportation/export costs. Do you believe BHP is as vulnerable to such a scenario (compared to othe rresouce companies) given their investments in oil, or would you say oil does not contribute enough to group earnings to provide any significant cusion?

Thanks in advance

I have read your post twice but I am still not sure whether I understand your questions. Anyway, here is an interim reply:

The spike in oil price has already increased costs. This has been happening for the past 9 months. All businesses have been trying to pass as much of these rising costs onto their clients as possible. Depending on their pricing power and/or term of existing signed contracts, the effects differ. Those who cannot pass on rising costs will have lower profits (most consumer discretionary stocks) or go out of business, at the extreme.

The risk of rising oil price to BHP is the reverse. Rising oil price boosts BHP's EPS.

Here is the breakdown for the 7 core divisions from the latest half yearly report 31/12/04 for BHP (a beautiful set of numbers):

EBIT (for 6 months):

1. Base Metals USD 1.04 billion (up 213% from previous period)
2. Carbon Steel USD 1 billion (up 99% from previous period)
3. Petroleum USD 909 million (up 51% from previous period)
4. Aluminium USD 458 million (up 49% from previous period)
5. Diamonds and specialty products USD 344 million (up 98% from previous)
6. Stainless Steel USD 340 million (up 76% from previous)
7. Energy coal USD 308 million (up 262% from previous).

All 7 divisions are firing huge profits. Another set of beautiful numbers are expected for 30/6/05 and when released, the market will probably wonder what the current fuss with recent share price weakness was all about (but this is only my opinion and I could be wrong).

Understand this, if BHP continues making this kind of money, it has the power to buy a mining company the size of WMR ($9 billion) each year, every year.

If you would like my opinion on the value buying of WMR by BHP, please read my post on the WMR thread. BHP is getting a bargain. When the market eventually gets to understand this, I expect a price re-rating of BHP provided BHP can actually close the deal (but again, I could be wrong).

Warning: This post is not investment advice. All mining shares are in the high risk industry sector, due to global exposure.

 

[Investor]

From aireview:

Whether you adopt the more common ‘stronger for longer’ theme or Deutsche Bank’s ‘fat tailed pricing environment’, the message remains the same – conditions are right for commodity prices to remain strong.

Deutsche certainly thinks so, having lifted its weighted average USD metal price forecasts by 15% in 2005 and 2006, and by 16% in 2007.

The broker suggests there are numerous reasons for its adoption of more bullish forecasts, but the driving factor is the compounding effect of a further period of above-average aggregate growth on low raw material inventories combined with supply constraints.

While the market’s recent correction may have shaken out some bulls, the broker notes its new forecasts allow for a fall in growth momentum led by Europe and Japan, as well as incorporating possible future monetary policy movements in the US to account for higher oil prices and rising inflationary pressures.

The key in the broker’s view is a better understanding of the strength of demand in the current cycle, which the market has persistently underestimated.

Gaining this better understanding requires a closer look at Industrial Production (IP), and, no surprise here, economic, social and political changes in China are at the heart of the far-reaching changes in the nature of global IP.

The broker has discovered that by changing measures of global IP to account for the rising significance of emerging market demand, especially in relation to China but also India, Russia and Brazil, the key demand variable in calculating IP is increased by an annual average of 1.24% out to 2009, which in turn requires an upward re-rating of forecasts for industrial metals over the period.

Of course, not all metals are the same, so the broker suggests a weighting towards aluminium, zinc and the bulk commodities of metallurgical and thermal coal and iron ore, as an overweighting in these metals will provide protection against enhanced volatility in other metals given likely higher US interest rates and the changing long-term global IP cycle.

In addition, the broker suggests a return to positive real interest rates and the structural problems within the US economy will also be benefi cial for gold and silver prices moving forward.

In 2003 David Humphreys, former chief economist at Rio Tinto (RIO), published a conference paper that illustrated how changes in developing markets impact on global IP.

He contended the factors included the development of material-intensive infrastructure and higher spending on consumption in the early stages of industrialisation, growth in discretionary spending as Deutsche Bank suggests conditions are right for commodity prices to remain strong per capita disposable income rises, a low or falling population dependency ratio and the continuing liberalisation of markets for capital, labour and traded goods.

These factors almost perfectly sum up the position in China today and highlight its growing importance for the global economy.

But where the China experience is different to what has gone before is China has been able to run a current account surplus for much of its development period, thanks in large part to a combination of low labour costs and rising productivity.

The fact China has been able to run a surplus, meaning it has built up a large holding of foreign securities, provides it with real power when it comes to its trade relationship with the US.

The other factor is China’s expansion is expected to last far longer than other Asian countries experienced, as despite nearly 25 years of strong GDP growth China’s per capital GDP remains well-below the level of its Asian neighbours.

This will flow through into a continued high domestic savings rate and high foreign investment, which will in turn flow through into a continued need for structural reform, which obviously flows through into continued demand for metals.

You can see where the story is going – China has little choice but to continue spending on infrastructure and construction as it needs to meet the demands of its ever-growing workforce, so with it forced to import most of its commodity requirements, strong demand is likely to last for another decade at least, all without adding in the impact of other growing nations such as Russia, India and Brazil.

With the demand picture looking rosy, can supply increases spoil the picture? Not in the broker’s view, as it expects most industrial raw material and energy markets to record defi cits over the next three years despite some evidence of increased supply.

Simply put, under-investment in new capacity means while market deficits are likely to narrow, new supply can’t come on stream fast enough to push markets back into surplus in the next few years.

As mentioned earlier, late-cycle metals such as aluminium and zinc are the broker’s preferred picks, along with the bulks, where constraints in port and rail infrastructure prevent any quick fix to the problem of insufficient supply.

The broker’s conclusion is this – the stronger for longer argument remains intact, because this time the situation really is different, as the development of a number of new economies, but in particular China, have changed the fundamentals of commodity markets and participants have been caught
short in reacting and need time to adjust and bring markets back into balance.

 

[Investor]

The world's biggest and third biggest diversified mining companies respectively.

Recent weakness in share price might have been due to 2 main factors:

1. Jittery global equity markets over the past few weeks, primarily arising out of Wall Street, with the reporting season, rising interest rates, renewed talks about trade barriers against China (this if it happens, might have adverse impact on demand for commodities).

2. Speculation that Rio might enter the bidding for WMR. If it happens, a bidding war between BHP and Rio could ensue. Markets do not like uncertainties like this. If Rio does not bid and BHP gets to buy, prices of both BHP and Rio would likely rise, other things being equal (other things are seldom equal but economists use this term for analytical purposes).

Once these two issues are settled, whether the prices of BHP and Rio resume the upward trajectory, hinges on whether the super mining boom continues.

Item no. 2 above will soon be settled. One uncertainty will soon be removed.

 

[Investor]

A major hurdle for resources sector in the coming years is the shortage of skilled mining professionals - particularly mining engineers.

"Recent estimates from the mining industry show that at least 150 graduates a year are needed just to maintain the status quo. Recent figures in the US show that the entire continent graduated only 86 people in the area last year but industry there needs at least 300 a year just to cover retirements. "

..... Don't underestimate the value that even one skilled professional can add to a company's bottom line. Giants like BHP and RIO are fortunate that they have huge cash generating operations in the booming iron-ore and coal industry, so the effect is swallowed up and difficult to quantify. ..

Yes. I never underestimate the value of skilled professionals. During my time, I had worked with good workers and bad workers. The good workers were always a pleasure to work with. The bad workers were bloody awful.

Yes. BHP and RIO can import expats from around the world very easily to fill any gaps in mining engineers.

Yes, there is a shortage of skilled workers as the mining industry was out of fashion for many years, while the spin of the new paradigm of the new economy where technology stocks did not need to yield any EPS (aka "la-la-land") was in vogue.

The US figures that you cited do not take into a/c China's current production of tertiary educated graduates (many times more than US figures). This is all part of China's long term planning to rise (the giant is awake after a period of slumber when its walls were closed to the world; and the world will be a different place henceforth, like it or not).

If you want to gauge the quality of China's graduates, understand these -

1. China wins the annual International Mathematics Olympiad competition every year. America has spent over 10 years trying to match this, using a program called "First in The World" (trust the yanks to come up with such a corny term) to no avail.

2. China wins the annual Microsoft real time software engineering competition.

The giant is now fully awake. The important areas it needs to focus on, going forward are huge improvements in its banking systems, corporate governance, rule of law, perhaps how to make a switch towards democracy from communist status; and how to manage its eventual military armament without scaring the rest of the world.

It seeks to arm in a big way in terms of technological warfare (America is trying to stop this). Its army is the biggest in the world, 2.5 million strong.

America has managed to stop the EU from supplying modern weapons to China. China will have no choice but to build its own weapons.

Heavy stuff, I know.

 

[Investor]

..... Then there is India, which is becoming the world's back office supplier. The IT centre in Bangalore is growing rapidly. Not just call centres but software programming is now streamed over the internet from all over the world. ....

From The New York Times:

BANGALORE, India, May 27 - Jeffrey R. Immelt, chairman and chief executive of General Electric, said Friday that he expected G.E.'s revenue in India to leap to more than $5 billion by 2010 from $800 million now.

Describing India as a "rising star," Mr. Immelt said on a two-day visit that General Electric would aggressively expand in India, one of the world's fastest-growing economies, with new investment in financial services and manufacturing.

"We believe that India is at the beginning of a growth cycle," Mr. Immelt said in a statement. He also spoke at a news conference in Mumbai Friday at the end of his India trip.

India is a crucial market for G.E., as over half of its global revenue this year will come from outside the United States. According to its annual report, G.E. expects 60 percent of its growth to come from developing countries in the next decade.

Mr. Immelt said the company would look for opportunities in advanced materials, energy, health care, financial services, security and water treatment.

"My intent is to bid on every new project and be a financial participant in almost all projects alongside offering our technology," he said.

For instance, the emergence of discount airlines, the open skies policy, the growing number of fliers and the demand for new and upgraded airports offer opportunities to businesses like GE Commercial Finance, GE Infrastructure and GE Aircraft Engines.

On Thursday, Mr. Immelt announced in New Delhi that G.E. would join with an Indian health care company, MediCity, to build a $250 million medical center, modeled after the Mayo Clinic, in Gurgaon, a suburb of New Delhi.

G.E. India and MediCity would collaborate to create a medical institute in high-end medical diagnostics and clinical research. The center, which will include a 1,800-bed multispecialty hospital incorporating alternative healing therapies, will open in 2007.

General Electric, which is based in Fairfield, Conn., has units and joint ventures in India spanning technology and back-office outsourcing, credit cards and banking. The company currently employs more than 20,000 people in India.

In Bangalore, for instance, G.E. has its biggest research and development center outside the United States, the Jack Welch Technology Center, that employs hundreds of scientists.

G.E. held a 10 percent stake in the much-disputed $2.9 billion Dabhol Power Company, set up by the Enron Corporation in the western state of Maharashtra. The plant closed in 2001 after a payment conflict with the state that escalated into an international arbitration issue. G.E. said it wanted to resolve the dispute over Dabhol in a "constructive and flexible" way.

G.E. entered India in 1902, and in the mid-1990's set up software, research and development and back-office operations. It was among the first global corporations to tap India's inexpensive, educated labor pool by outsourcing.

 

[Mofra]

Investor,

firsly thank you for answering my question re: oil price rise effect on BHP

...and how to manage its eventual military armament without scaring the rest of the world.

It seeks to arm in a big way in terms of technological warfare (America is trying to stop this). Its army is the biggest in the world, 2.5 million strong.

America has managed to stop the EU from supplying modern weapons to China. China will have no choice but to build its own weapons.

Interesting point, although their military does seem to be closing in on military parity with the East Asian region despite the collapse of the Soviet Union removing a major source of international technology (with the exception of a short period of military hardware liquidation of smaller former Soviet states). China (anecdotally at least) does not have a great respect for intellectual technology so the licensing of whatever technology they can import is one hurdle removed, however there is one hurdle I believe is not mentioned in terms of China's bid for parity with the US.

A great strength of the US military is their foreign bases providing a strong worldwide logistical network, which enables their projection of power (NEVER undersetimate the importance of logistics to military operations). The US network, to a large extent, is increasingly reliant on the US economic power, and provides a fiscal argument for governments granting continued access to the US military.

As China increases it's economic power, it is quite possible that this economic power will be used diplomatically to gain access to foreign airways, military sites (especially logistic bases) etc to enable thier own projection of power. This would have great implications for the world economy, and for governments quick to embrace the New China the benefits could be substantial.

Given Australia's reliance on resource exports, you would hope that the government is aware that the need for closer diplomatic ties to China may well require military or security concessions, and encourages this instead of adopting a confrontational stance.

 

[Investor]

From a Wall Street analyst:

"I’m putting shares of BHP Billiton(NYSE: BHP) on the recommended list at today's opening price.

BHP Billiton is the world’s largest diversified-resources company. If you haven’t heard of it, that may be because it is an Anglo-Australian company. Its shares trade on the NYSE as an ADR.

The company exports coal for the steel industry and mines ore, copper, aluminum, and has huge interests in oil, natural gas, nickel, diamonds, and silver.

The fundamentals for this company are excellent. It’s in the natural resources sector – which is seeing rising prices. Gold is only one part of this story. Oil is going up. Natural gas is going up. And analysts are expecting coal to go up 30-40% next year and iron to go up more than 100%. This company is in it all. And it's growing fast.

BHP is on track to increase its oil production by 40% to 180 million barrels by 2008. Its oil and gas operations make up 34% of its earnings.

BHP also has a share buy back program and is planning on buying 180 million shares over the next 12 months.

What is more it is also a play on the China growth trend. China is just emerging as an industrial economy. The demand for energy in China is only beginning, with the country experiencing constant brown outs in its major cities.

According to the International Business Report, over 80% of China is experiencing energy outages. Not only is the country using more and more oil, natural gas, and coal, but is going through a construction boom to create more power plants, which is putting a strong bid under steel prices.

According to the Wall Street Journal, BHP is poised to profit from the China energy crisis:

“As long as oil and natural-gas prices stay high, coal will remain an attractive alternative for fueling electricity plants. China and the U.S. are already ramping up development of new coal-burning plants. Their construction could help ensure stronger long-term demand.”

“Meanwhile, some analysts believe coal will get a second wind from an unlikely source: Chinese steelmakers. Most analysts had expected China's steel production to fall significantly after the government tightened credit in the sector earlier this year.”

“But the industry hasn't slowed as much as they expected. Moreover, it is becoming evident that the tightening is targeted at small, inefficient producers. Analysts say some large Chinese steel companies have been told recently they should plan to go ahead with expansion plans. Steel demand remains robust in the U.S. and other countries.”

“As a result, supplies of coking coal, the type used in steel mills, remain tight.”

“Melbourne-based BHP Billiton Ltd. highlighted this trend earlier in the month by saying it plans to dramatically increase its coking coal production to 100 million tons a year by 2010, from 58 million tons this year.”

“In a presentation to analysts, the company cited its "more robust view of global steel demand," and noted that customers are expanding capacity in India, the U.S. and Russia. Steel capacity is also being added in China, it said.”

“BHP believes global coking annual coal demand will increase to as much as 270 million tons by 2010, compared with about 190 million tons currently.”

With this company’s earnings growth combined with its chart action and high relative strength it qualifies as a classic CANSLIM Investors Business Daily Stock. "

 

[Investor]

CSFB Upgrades Rio Tinto To Outperform
May 30 2005 - Australasian Investment Review – (AIR)

CSFB has moved to upgrade its rating on Rio Tinto (RIO) to Outperform from Neutral following relative price movements in the market over the past few weeks.

The broker notes Rio Tinto stock has fallen 4% since May 9, compared to a gain in the S&P/ASX200 index of 2.9% over the same period.

Based on its earnings forecasts, CSFB expects RIO shares to deliver a total return over the next 12 months of 20.3%, which implies an excess return compared to the market of 8.5%, putting the stock back into the Outperform category based on the broker’s rating criteria.

CSFB’s target price on the stock is $50.26.

Eight out of the ten leading equity advisers in Australia now hold a positive rating for Rio, with Merrill Lynch and UBS rating the stock Neutral.

 

[Investor]

Miners' profits boom with China
May 31, 2005
From: Agence France-Presse

GLOBAL mining sector profits more than doubled last year, fuelled by a seemingly insatiable Chinese appetite for resources, a report said today.

PricewaterhouseCoopers' global mining analysis said the world's 40 largest mining companies reported a 111 per cent increase in aggregate net profits to $US27.9 billion ($36.7 billion) for 2004.

The increase was due to rising global demand, particularly from China, and a weaker US dollar pushing up commodity prices.

Investor confidence in the mining industry continued to strengthen with mining stocks outperforming both the US S&P 500 and the Dow Jones Industrial Average over the last three years, the report said.

Global mining revenue increased by 39 per cent to $US184 billion in 2004 with a net profit margin of 15 per cent compared with 10 per cent in 2003.

BHP Billiton, Rio Tinto, Anglo American and Brazil's CVRD accounted for 40 per cent of industry market capitalisation.

The return on capital employed was 14 per cent compared with seven per cent in 2003.

Net cash flow from operations increased by 88 per cent to $US41 billion while exploration expenditure rose by 31 per cent to $US1.7 billion.

The report said increasing commodity prices, especially base metals and energy commodities, had driven performance as demand increased.

Return on equity in the sector also shot up from less than seven per cent in 2002 to over 18 per cent in 2004.

PricewaterhouseCoopers Asia Pacific mining leader Tim Goldsmith said the results pointed to the boom continuing.

"Australia is well placed to continue to benefit from China's increased demand for mineral products, particularly iron ore and coal," Mr Goldsmith said.

"However, Australian operators in particular must ensure we do not become complacent in the boom and lose focus on developing infrastructure and ongoing exploration.

"The challenge now facing all companies in the sector is how to make best use of their growing cash balances, with increased pressure for money to be returned to shareholders unless it is reinvested quickly."

And companies were now implementing growth strategies to take advantage of market conditions.

However, the report said a 24 per cent increase in capital expenditure to $US23 billion was modest, reflecting mining companies' caution and a shortage of investment opportunities for commodities.

 

[Investor]

BHP has lodged notice to ASX that as at close of yesterday, it held 20.66% interest in WMR.

Almost 35 million shares in WMR have been traded this morning.

 

[TjamesX]

BHP Billiton Limited (BHP) said this morning that its total interest in WMC Resources Limited (WMR) had reached 42.8%. The comments come at the start of the final day of the WMC offer, which will not be extended unless 50% acceptance is attained.

they're close to the 50% unconditional that needs to be reached today. I think they'll get it and along with it the certainty around the takeover will lead to a further rise for BHP...

TJ