Two blue-chip resource plays

BHP Billiton Limited

BHP Details
Targeting assets in Mexico: BHP Billiton Limited (ASX: BHP) stock started trading on a positive note in 2017 and generated over 2.3% in last five days (as at January 05, 2017). The stock delivered returns of over 45.8% in the last one year as of January 05, 2017). Recently, the group submitted a winning bid to acquire 60% participating interest in and operatorship of blocks AE-0092 and AE-0093 containing the Trion discovery at deep-water Gulf of Mexico offshore, Mexico. The remaining 40% interests will be retained by PEMEX Exploration & Production Mexico (Pemex). Pemex has forecasted 485 MMboe gross recoverable resources for the blocks. Agreement is expected to be finalized and signed within 90 days based on approvals (as of December 2016). The group is bidding for upfront cash payment of US$62.4 million and a commitment to a Minimum Work Program (estimated to be up to a maximum of US$320 million). With this bid, BHP is aiming at the core frontier area of the deep-water Gulf of Mexico. For the Samarco operations, the group has also approved a further amount of US$ 181 million to fund the remediation and compensation programs identified under the Framework Agreement which the Renova Foundation governs and oversees. Further, a short-term facility of up to US$ 115 million will be made available to support the Samarco operations. Also, the use of the Timbopeba open pit is expected to provide an extended pathway for tailings disposal for Samarco.

 

Dividends (Source: Company Reports)
 
In FY16, the unit cash costs were brought down by 16% from FY15. BHP also reported for underlying EBITDA of US$ 12.3 billion and underlying EBITDA margin of 41%. We maintain our bullish stance on BHP given the rallying commodity prices and give a “Buy” recommendation on the stock at the current price of - $ 25.50

 
BHP Daily Chart (Source: Thomson Reuters) 

Rio Tinto Limited

RIO Details
Strengthening management: Rio Tinto Limited (ASX: RIO) stock generated over 37.3% in last one year (as of January 05, 2017) on track with its peers like BHP. RIO strengthened their management by appointing Vera Kirikova as a Human Resources Group executive and Simone Niven as a Corporate Relations Group executive from January 2017. Further, Steve Allen has joined the group as company secretary. RIO has a strong diversified portfolio of over $50 billion worth of assets. For 2017, RIO expects that their production would lead to an operating cash flow of over $10 billion as per third quarter 2016 average prices. Given the rising commodity prices, the group’s margins could improve further this year. RIO is maintaining their efforts on exploration and continuing these activities in 17 countries for eight commodities. Moreover, Rio is targeting more $5 billion free cash flow in the next five years driven by their productivity efforts. The group also launched a debt reduction program for up to $3 billion. Less than $1.5 billion are maturing in the next three years. RIO has a decent dividend yield. We maintain our “Buy” recommendation on the stock at the current price of - $ 60.13

 
RIO Daily Chart (Source: Thomson Reuters)

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