BHP Billiton Limited
Movement partially driven by Commodity Prices:BHP Billiton Limited(ASX:BHP), a well-known name in mining sector with stable fundamentals, released its quarterly activities report in October. BHP has five major projects under development as on September quarter end, in petroleum, copper, iron ore and potash with a total budget of US $ 10.6 billion over the life of the projects. September quarter posted 2% increase in copper production. Production guidance remains unchanged for petroleum, iron ore, metallurgical coal and energy coal.However, 3% reduction in total copper production guidance is reflecting lower volumes expected on account of electro-winning plant outage at Spence and acid plan outage at Olympic Dam. All major projects under development are well on path with the schedule. Drilling has been conducted at sidetrack of Samurai-2. Fayetteville transaction has already completed on September 29 and on shore US sale process well on track and scheduled to be completed by the end of October 2018. BHP earlier reported free cash flow of US $12.5 billion and its underlying profit increased by 33% up to US$8.9 billion with dividend of US 63 cents per share being recorded. Meanwhile, the Company has entered into a share subscription agreement with SolGold Plc (majority owner and operator of Cascabel Porphyry copper-gold Project in Ecuador) in October, under which SolGold will issue 100 million shares to BHP.
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BHP’s Nine Key Projects (Source: Company Reports)
Technically, BHP was on the downtrend as noted in October 2018, and is trading at the lower Bollinger band zone. With favorable commodity price movement, positive divergence can bring some pull back in near term. Earlier, the share prices saw a fall on account of fall in copper prices and overall market volatility seen so far. Copper prices were on complete downtrend from October 4, with small pull back indicated around October 22. Once copper price takes hold on current levels, BHP can expect some pull back. The market cap of BHP was recorded at $98.92bn, with price to earnings ratio (P/E) of 32.71x as on October 26. Resilient underlying result along with free cash flow and divergence on technical chart are key to note. The group also intends to have a CAPEX below US $8 billion for FY19 and FY20. We give a “Hold” on BHP at current levels of $31.20.
South32 Limited
Decent financials:South32 Limited (ASX:S32), is known for its diverse and high quality commodities portfolio. The group’s cashflow position has supported thecompletion of acquisition of Eagle Down metallurgical coal project in Queensland in September and the acquisition of Arizona Mining, owner of the silver, lead, zinc Hermosa project in Arizona.Key Highlights of 2018 financial performance included revenue of 7.5 billion dollars posted along with 16% rise in the underlying earnings of 1.3 billion dollars. There was 8% rise in statutory profit of 1.3 billion dollars. Return on invested capital recorded at 13.5% and 53% of total shareholder returns. Net cash balance decreased by 50% from US $1362m to US $679 m during the September 2018 quarter.
Technically, the scrip is trading at lower zone of Bollinger bands with candles forming wicks indicating rejection towards downside in near term. S32 is expected to show some bounce back in near term. The price fall is in line with Copper price fall which was well indicated on technical charts in October. Now, it is expected that copper prices might take major support levels while the levels still remain of key concern before any final trend confirmation is noted in this direction.
The market cap of S32 was recorded at $17.98bn, with price to earnings ratio (P/E) of 10.08x and low beta as on October 26. We maintain a “Hold” recommendation on S32 at the current price levels of $3.51.
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