BHP Billiton Limited (ASX: BHP)

Focussed on cost efficiencies and further gains - BHP, a blue-chip mining company with a unique portfolio of the very best assets that are diversified across attractive commodities, has moved on a journey towards the delivery of its roadmap to grow long-term shareholder value, together with stronger commodity prices helping it increase the return on capital employed. BHP has delivered a 30 per cent increase in BHP’s base value over the past two years. The Group maximised operating cash flow as it lowered costs through productivity. It has a disciplined and a transparent approach in capital allocation. It has identified new options to increase value and returns. Through its key drivers, the Group has achieved few milestones over the past two years like the unit cost got reduced by more than 15 per cent, it accelerated its technology and innovation program, progressed on five high-return projects and sanctioned two major projects in copper and oil.

Moreover, the Group reduced its net debt by over US$10 billion and returned US$8 billion to shareholders. It has a pipeline which can add a further 40 per cent to the value of BHP but is subject to its strict capital allocation processes. It continues to target a further US$2 billion in productivity gains by the end of the 2019 financial year and further will leverage its scale and simplicity to capitalise on the benefits of new technology to reinforce its position in safety and productivity. It is making good progress with the exit from its Onshore US business on the back of quality of acreage, better oil prices, a lower US corporate tax rate and from positive results from recent well trials that contributed to encouraging interest from potential bidders.


BHP’s Base Value and Returns (Source: Company Reports)

Recently, the price discount on lower grade ore has increased as Chinese mills prefer to use ore with at least 62 per cent iron content due to China’s crackdown on air pollution and BHP is already one of the ore producers with the highest quality in the industry. It recently received bids for US$9 billion for its shale assets and expects to receive offers in the second round and up to US$13 billion if it sells the assets individually.The fears from strike by the workers of Escondida project (a project operated by BHP with a controlling stake of 57.5%) led to higher copper prices which helped BHP. However, with the latest fall in oil prices as OPEC gave an uncertain market outlook for FY18, the stock price witnessed a downswing of 1.31% on June 13, 2018. The price otherwise moved upwards in the past six months by 21.84 per cent. It is better to “Hold” the stock at the current market price of $33.25 by looking at the potential and current commodity pricing landscape.

 
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