BHP - BHP Group

BSD

Why would copper fall 50% in 14 months if it is in deficit?

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The reason that Copper, and all other commodities can fall in price & demand, is that China, which is the margin consumer only has 42% domestic demand. The other 58% comes from the US & Europe.

If GDP in the US & Europe slows [and or falls] the net effect will be to curtail the growth rates in China. This effect will be leveraged via falling foreign exchange within the Current Account, and continued requirements to subsidise the already loss making industries so as to maintain employment.

The result will be falling commodity prices.
BHP, and other Australian producers, will thus see falling net profits, which will in all possibility impact negatively on investor sentiment, resulting in lower short-term shareprices.

US home building has already fallen at a rapid rate it is not a new story. Speculative money went short months ago and copper remains above $3.00

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It's an old story in the market, but, it has not reflected itself in the Economy as of the moment. When [if] it becomes reflected in the real economy, then, will commodity prices be impacted [again at the margin]

Selling BHP at 8 times and buying tech stocks would appear an amusing trade for those who hate money or have an investment timeframe of three minutes.

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A basic misunderstanding of the vanilla P/E ratio.
P/E's are affected by earnings & price.
Low P/E's are relevent when earnings are low not when earnings are high. Cyclical businesses, must be bought in a low earnings environment, anticipating the next cyclical high in earnings.
BHP is currently in the wrong part of the cycle for purchasing, unless, price goes far lower..........

Who is short 30,000 tn of Nickel? There is only 6,000tn at the LME

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No-one seems to know.
Part of the three M's of the market.

Some hedge funds and manipulating shorts are going to lose their shirts.

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Some already have.

Fundamentals will eventually outweigh the macro money.

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So falling commodity prices then?

jog on
d998

For the non bears:

From Egoli:

Investment Stories:
BHP Billiton (BHP) – An 86 billion dollar bargain

If a forward P/E of 6x isn’t reason enough to start accumulating BHP then I don’t know what is! Every long term portfolio should be accumulating at these prices. Put them in the bottom draw and revisit them when they hit $30!

BHP has been in a strong uptrend since early 2003. After rallying to $32 in May 06 the stock has been under some selling pressure. The stock is now sitting on a previous turning point at $24.50 where it managed to bounce in June. This level is also the 38.2% Fibonacci support line and looks like a good level to start accumulating the stock for a longer term play. ABN AMRO 12 month price target of $36.

Fundamentals

We are forecasting a FY07 NPAT of US$13.441 bln. Considering BHP’s current market cap is ~A$86 bln, if we assume an exchange rate of 1 aussie for 0.75 US that equates to about A$18 bln NPAT. Therefore BHP is earning about 21% of its market cap in profit.

While commodity prices have retreated from their May 2006 highs, there is no indication at this stage that the commodities boom is over. Prices are still well above long term averages, and BHP’s well diversified suite of assets mean it will be insulated from movements in any one commodity price.

Duc

The 'margin' does not need to grow to have copper above $1.80 in 2008. Current demand has the market in deficit.

The 'margin' will need to contract an incredible amount

BHP is therefore cum-upgrades and cheap now

Who knows what happens with another year of 15% Chinese industrial production growth (as forecast by the IMF)



As for my basic misunderstanding of PEs -I think our differences lie in where we think the cycle currently stands.

You think we are at the top, I think we are three years into a fifteen year cycle. The industrialisation of Japan took longer than a couple of years

The 'fundamentals' are a market in deficit where a supply response takes 8 years.


Nizar
I didnt include ZFX because unlike BHP, RIO and OXR - ZFX doesnt have long mine lives and visible production growth in coming years.

Would prefer more diversified plays too. KZL and OXR spring to mind.

Will be interested to see how they spend all this cash though.

nizar said:

Dont forget about ZFX
I dont think the market has realised that its $2billion profit was due to a realised zinc price of USD2105/tonne
At USD3300/tonne, even if the spot price doesnt move from us$1.50/lb (=3300), which is where it is now, their profit will still be 50% higher

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hey nizar how do u get 50% higher? so how much will the profit be if USD3300/tonne is maintained throughout aprox?

thx

MS

BSD

where do u think copper will be in 2008?
alot of OXR's profitability (and also BHP's though to a much lesser extent) depends on this

if you use us$2.50/lb as i did, ull find PH isnt all that great

but KZL i like very very much!

michael_selway said:

hey nizar how do u get 50% higher? so how much will the profit be if USD3300/tonne is maintained throughout aprox?

thx

MS

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bro (3300-2105)/2105 * 100 = ~57%
their profit will depend on if budel expansion eventuates as per their plan but i think century production will generally be maintained minus 2 weeks (keep in mine 70% of their profits come from here)

though costs will increase and century will be closed for 2 weeks in september and rosebery will be mining lower grades meaning higher costs, i am confident that there will be a zinc spike in the next 6 months taking the spot price us$2/lb+

and that is the basis for my prediction of $2billion NPAT

as always, please do your own research or consult a professional financial advisor before investing. The above is only my opinion and does not constitute financial advice

BSD

Well I believe Chinese growth is far more dependant upon US & European growth. With only 42% domestic consumption, that figure is far too low to sustain 15% growth in the GDP.

If Chinese growth slows as a direct consequence of slowing world growth, the projected demand will fall, and quite possibly sharply, while concurrently, due to increased capital expenditures, supply increases.

This double blow, could seriously impact prices for commodities.
Commodity prices have historically been extremely volatile, hence the initial requirement for forwards futures markets. This has not changed, and, further cyclicality is a high probability.

Prices for many commodities are at generational highs.
Can they go higher?
Of course, but they can also go lower.
BHP is currently priced for perfection, any negative surprises could be a very nasty surprise for buyers at current levels.

In regards to where we are in the current cycle, agreed, we are at polar opposites. I would say we are nearly 10yrs into the bull market, I have no opinion on how far it should last however.

I would also argue that the price [current prices] have a large speculative component built into them currently, that has little to do with the true underlying fundamentals.

jog on
d998

ducati916 said:

I would also argue that the price [current prices] have a large speculative component built into them currently, that has little to do with the true underlying fundamentals.

jog on
d998

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Duc

Wouldnt u agree the speculative component is somewhat less now (u still reckon its large??) and that most of it disappeared when BHP went from $32 to $24 ?

nizar said:

bro (3300-2105)/2105 * 100 = ~57%
their profit will depend on if budel expansion eventuates as per their plan but i think century production will generally be maintained minus 2 weeks (keep in mine 70% of their profits come from here)

though costs will increase and century will be closed for 2 weeks in september and rosebery will be mining lower grades meaning higher costs, i am confident that there will be a zinc spike in the next 6 months taking the spot price us$2/lb+

and that is the basis for my prediction of $2billion NPAT

as always, please do your own research or consult a professional financial advisor before investing. The above is only my opinion and does not constitute financial advice

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I see what u mean by 50% roughly

But even if it doesnt spike NPAT will be $2 billion about if prices stay 3300

Zinifex reported NPAT of $1,079.9m for the year ended 30 June 2006, more than four and a half times that of the previous year. Revenues from ordinary activities were $3,062.7m, up 61% from last year, driven by metal prices and a strong operating performance with total production exceeding the previous year and new annual records set at the Century mine and Clarksville refinery. Diluted EPS was 220 cents compared to 46 cents last year.

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2105: Rev $3bil Exp $2bil = NPAT $1bil approx
3300: Rev $4.5bil Exp $2.5bil (cost increase likely) = NPAT $2bil approx?

So $2 bil NPAT without any spike?

thx

MS

The speculative money has been short for some time - particularly in physical copper. UBS and Citi have both reported this in the last weeks. But physical demand from consumers continues to provide support.

I don't know where Cu will trade in 2008.

LME futures has it trading between $2.70 (27mth) and $3.10 (15mth) . My money is being bet on these types of prices and not $1.80.

The supply will eventually catch up and bring prices down. But in my view this will be years later than expected and with a far higher cost of marginal production. I use $1.40 in my long term models, but really think this is too low.

Whatever value BHP is, it is certainly better value this evening on the NYSE.

- ~4% atm... and below june lows.

Does that make it a buy or a sell

as if BHP isn't a good buy right now.. you could make 10% easy within a few months

But wait, there's more uranium for BHP

September 26, 2006


ALREADY the world's biggest uranium deposit, BHP Billiton's Olympic Dam deposit in South Australia's outback has just got a lot bigger.

Aggressive drilling by BHP and the previous owner, WMC Resources, has allowed the June 2006 resource estimate for the ore body to be upgraded by more than 11 per cent.

The upgrade adds more than 188,000 tonnes of uranium - worth close to $30 billion at current spot prices - to the previous estimate of 1.5 million tonnes, itself accounting for about 40 per cent of the world's known uranium resources.

And that is before taking into account the additional 5.1 million tonnes of copper - the main revenue earner at the remote mine site - indicated by the resource upgrade. The extra 7.5 million ounces of gold won't hurt either.

But it is Olympic Dam's status as the world's biggest and growing uranium deposit that gives the operation its true global significance given the rush to secure long-term uranium supplies for nuclear power, with China and India emerging as new buyers.

Since acquiring WMC Resources last year for $9.2 billion, BHP has carried on with an intense drilling program to determine just how big Olympic Dam is. The drilling program has shown the deposit remains open in several directions - notably to the south - and at depth.

Results from the drilling will determine the feasibility of a $7 billion-$10 billion expansion of Olympic Dam, which would at least triple current annual production of copper (210,000 tonnes) and uranium (5000 tonnes) through the development of a massive open-cut. A feasibility study is due to be completed at the end of next year.

The rush to secure long-term supplies of uranium comes as new mine production continues to fall well short of global consumption of 77,000 tonnes a year. The squeeze has been reflected in spot prices surging from less than $US10 a pound five years ago to more than $US53 a pound.

Australia is scrambling to expand sales options to the boom economies of China and India. In April, an agreement allowing uranium exports to China was signed but that has yet to translate into contract sales. China is nevertheless tipped to be a major buyer of expanded output from Olympic Dam. BHP shares closed 21c weaker at $24.60 yesterday.

The reporter owns BHP Billiton shares.

Surely BHP has to bounce back. I'm tipping around $28-$29 by Christmas.
Commodites prices may seem a little unsustainable but I think they will pick up and be at least maintable into early next year.

With BHP's current P/E ratio it is a $40 stock.

As I said I have only ever valued BHP, Psycologicaly, at $23, but thought it may have turned by now anyway ...I'm out of a long position as of today.. lost 35c on SP....graph looks to sick......need a decent up swing to change my mind.......still holding MBL though-Gained $4.60.....if bHP hits 22-23 then I'm possibly back in.......realist ....where...where was that little spiel from....did you make it up...lol

watsonc said:

With BHP's current P/E ratio it is a $40 stock.

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With the prospect of decreasing earnings p/e should be no more than 6 to be a buy.... and I still wouldn't put it in the bottom drawer.

BHP is simply a stalwart benefiting from a bubble in commodity prices. Once that bubble pops, BHP reverts back to being a dog

watsonc said:

Surely BHP has to bounce back. I'm tipping around $28-$29 by Christmas.
Commodites prices may seem a little unsustainable but I think they will pick up and be at least maintable into early next year.

With BHP's current P/E ratio it is a $40 stock.

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Cant believe people still think resources is a long term hold

Medium and short term should be up yes

But basically prices has gone too high compared to their relative suppliess (or future supplies for that matter) etc

thx

MS

Forget the PE - the NPV is the key and the current NPVs are not formulated using bullish commodity prices or the investment of a potential $50bn of available cashflow in the next 4 years at solid IRRs.

If you aren't carrying excess leverage you don't care what it does next week. At the moment every man and his dog are short.

This commodity bull market will last more than three years.


http://www.robtv.com/servlet/HTMLTemplate/!robVideo/robtv0726.20060921.00043000-00043198-clip2/h/220asf///


As Jim says, we cannot be in a commodity bubble if nobody owns any.

BSD said:

Forget the PE - the NPV is the key and the current NPVs are not formulated using bullish commodity prices or the investment of a potential $50bn of available cashflow in the next 4 years at solid IRRs.

If you aren't carrying excess leverage you don't care what it does next week. At the moment every man and his dog are short.

This commodity bull market will last more than three years.


http://www.robtv.com/servlet/HTMLTemplate/!robVideo/robtv0726.20060921.00043000-00043198-clip2/h/220asf///


As Jim says, we cannot be in a commodity bubble if nobody owns any.

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Thats just Jim ramping LOL

However, totally agree with him on energy. The rest is crystal ball gazing.

Bulls in the weather markets will be caused by calamity only.

Metals? In the face of the imminent depression? Perhaps if there is hyper inflation. (a strong possibility)

But as a case for a lasting bull, the video was a tad short of substance.

Nobody owns commodities? LOL It doesn't work that way. Commodities are NOT an investment per se'... and they are owned via the stockmarket.

Cheers

BSD said:

As Jim says, we cannot be in a commodity bubble if nobody owns any.

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Hm he said Hedge Funds do?

Pension Funds ring a bell also, and there heaps of money in that

Jims Flaw is that he always says historically, in real terms, we are below all time highs

But the thing is History doesnt necessarily repeat itself, it doesnt have to

But I do believe there is 1 or 2 more yrs left 3 maybe, but crash will eb coming esp if prices goes higher

thx

MS