BHP Billiton’s Progress

BHP Billiton, the world’s biggest diversified resources stock, delivered scintillating results for the first half of its 2011 year (to 30 June), with operating cash flow rising to more than USD 12bn, compared to USD 5.5bn for the comparable period in fiscal 2010.

Looking at calendar 2010 as a whole, capital expenditure rose to a record of nearly USD 10bn. This underpins huge confidence in the group’s future: BHP Billiton’s investment in organic (internal) growth is set to absorb USD 80bn over the next five years. Dividends have once again increased, and net debt has fallen to around zero, from USD 12bn at the end of 2007.

The group has expanded its capital management programme, with USD 10bn (previously USD 4bn) worth of its own stock to be bought back by the end of 2011. The return to shareholders on this basis alone would then have risen to USD 22.6bn since 2004.

BHP Billiton ranks as one of the most heavily capitalised stocks (of any kind) in the world, with a market value of USD 248bn. Were it a member of the 30-component Dow Jones Industrial Average, BHP Billiton would rank second in value only to Exxon Mobil, the oil major.

BHP Billiton CEO Marius Kloppers seemed relaxed during a media call on the results, emphasising BHP Billiton’s “simple business model built around Tier 1 resources”. He stressed that the group’s strategy “has not changed”.For investors, the returns have been remarkable. According to information supplied by BHP Billiton, the group’s capital return to shareholders over the past five years has been USD 29.3bn. This compares to “Peer 1″, not named as such, which has delivered a comparable USD 16.7bn. Peer 2 is far behind at USD 2.8bn, Peer 3 is at a negative USD 2.6bn, and Peer 4 at a negative USD 3.8bn.

The net capital returned includes stock buy backs, dividends, and equity raisings (rights issues). Peer 1 is undoubtedly Anglo American, following heavy stock buybacks in 2006 and 2007, and its steadfast avoidance of a rights issue. Returns from bigger mining companies unquestionably in the peer group, Vale and Rio Tinto (and also Xstrata) were eroded over the past five years by rights issues, and, indirectly, overpriced acquisitions.

Some big miners

	Stock	From	From	Value
	price	high*	low*	USD bn
BHP Billiton	GBP 24.99	-5.6%	48.9%	248.04
Vale	USD 34.98	-6.1%	49.0%	185.00
Rio Tinto	GBP 45.69	-3.2%	66.1%	150.97
Anglo American	GBP 33.47	-3.5%	50.3%	72.57
Xstrata	GBP 14.66	-7.2%	76.1%	70.17
Suncor	CAD 41.62	-3.0%	39.2%	65.94
Shenhua	CNY 24.87	-19.5%	21.9%	62.23
PotashCorp	CAD 62.10	-1.7%	110.1%	53.61
Freeport-McMoRan	USD 55.68	-9.2%	98.1%	52.44
Barrick	USD 49.44	-11.3%	38.1%	49.37

* 12-month

BHP Billiton has remained largely out of acquisitions, in some cases, whether it likes it or not. Over the past five years, it abandoned a take over bid for Rio Tinto (in the wake of the 2008 credit markets crisis, and Rio Tinto’s sky high debt), abandoned a merger of its Australian iron ore assets with Rio Tinto’s (following regulatory challenges), and was whipped out by the Canadian government in its 2010 USD 40bn cash take out bid for PotashCorp.Since it was formed by merger in mid-2001, BHP Billiton’s biggest group acquisitions rank as the USD 7.2bn cash take out of Australia’s WMC in 2005, mainly for Olympic Dam, which ranks as the world’s No 4 copper, No 4 gold, and No 1 uranium, deposit.

In September 2008, there was the largely unnoticed acquisition, where BHP Billitoninvested USD 1bn, by the BHP Billiton Mitsubishi Alliance, in acquiring the New Saraji coking coal exploration project from Australia’s New Hope.

Kloppers today indicated that the major portions of BHP Billiton’s USD 80bn capital expenditure over the next five years would go in the direction of the petroleum division, iron ore, coking (metallurgical) coal, and copper. These are the four divisions that have delivered the biggest meat for the group over the past few years. The developing Jansen potash mine in Saskatchewan, set to be the world’s biggest, will also absorb many billions of dollars, and could take close to a decade to fully develop.

BHP Billiton
Calendar year*, USD m	2010	2009	2008	2007	2006	2005
Operating cash flow	24,645	11,237	23,383	16,439	13,186	9,485
Capital expenditure	-9,884	-8,753	-9,150	-7,791	-6,014	-4,409
Free cash flow	14,761	2,484	14,233	8,648	7,172	5,076
Stock buybacks	-387	-246	-204	-7,617	-3,534	-130
Cash on hand	16,156	8,382	7,195	2,294	1,423	809
Debt	-15,956	-16,297	-11,363	-14,298	-8,629	-9,533
Net debt	200	-7,915	-4,168	-12,004	-7,206	-8,724
Dividends	-4,842	-4,564	-3,893	-2,694	-2,159	-1,684

* The group’s fiscal year end is 30 June

Source