The tale of four Big Miners

BHP Billiton Ltd

BHP Dividend Details
 
Ongoing copper production focus by controlling unit costs: BHP Billiton Ltd (ASX: BHP) stock has been under pressure as ongoing commodity prices continued to impact its earnings performance. Moreover, the shares plunged over 30.08% (as of December 14, 2015) in the last three months impacted by the Samarco incident, wherein Fundao dam and the downstream Santarem dam have been affected leading to major damage. On the other hand, BHP undertook extensive rescue operations and immediately made arrangements to clean up the site. The group has been cutting costs to offset the top line pressure and accordingly estimates to decrease the copper unit costs to US$1.08 per pound by fiscal year of 2017, which would enhance its cash margins. BHP would continue to increase its copper production to over 1.7 Mt by FY17. BHP is also targeting to cut its Olympic Dam unit costs by 48% by FY17 end to US$1.00 per pound, enabling the asset to be in the lower end of the cost curve. Overall, the company expects to deliver material cost reductions at both the Pampa Norte mines, Spence and Cerro Colorado.
 

BHP Mineral resources base (Source: Company Reports)
 
The group forecasts the Spence unit costs to decline by 10% to USD 0.87 per pound by FY17. BHP estimates the production from Olympic Dam and Spence to reach over 200 ktpa by FY16. We remain bullish on BHP given its solid long term potential and strong assets base. In addition, BHP has an outstanding dividend yield. We reiterate our “BUY” recommendation on the stock at the current price of  $16.27
 
 
BHP Daily Chart (Source: Thomson Reuters)
 

Rio Tinto Ltd

RIO Dividend Details
 
Building high margin bauxite assets: Rio Tinto Ltd (ASX: RIO) has strong high-margin bauxite assets and recently reported an Amrun project in Australia, which is a very high quality mining project with the group incurring a capital investment of $1.9 billion during FY17 to FY19 for the project. Amrun project would deliver strong returns of more than 20% while the group already entered into off-take agreements for the project’s potential output. Meanwhile, RIO is also focusing on its cost efficiency throughout its Aluminum product smelting business, wherein its Kitimat aluminum smelter in Canada is well positioned to be among the first cost quartile in the industry with full production in 2016. Management reported that the Aluminum product group would deliver over $300 million of cash costs improvements by 2015, and intends to cut capex by $45 million. Rio Tinto estimates its bauxite and alumina production to increase by 4% and 3% to 45 million tonnes and 8 million tonnes, respectively in 2016.
 

Rio Tinto’s strong bauxite position as compared to its peers (Source: Company Reports)
 
On the other hand, the shares of RIO plunged over 26.37% in the last six months (as of December 14, 2015) impacted by commodity pressure and ongoing uncertainty in China. But, RIO’s production efficiency, costs control focus coupled with its enhancing bauxite and iron production would add support to the stock in the coming months. The recent announcement that Oyu Tolgoi secured a project finance (US $4.4 billion) for the underground mine is also a key development. The group is trading at a P/E of about 20x and has a strong annual dividend yield of about 7%. We place a “BUY” recommendation on the stock at the current price of  $41.76
 
 
RIO Daily Chart (Source: Thomson Reuters)
 

Woodside Petroleum Ltd

WPL Dividend Details
 
Withdrew Oil Search merger proposal: Woodside Petroleum Limited (ASX: WPL) recently reported that it withdrew its Oil Search merger proposal. Oil search already rejected the group’s merger proposal stating that the WPL had undervalued its assets. As a result, the shares of WPL plunged over 3.43% in just last five days leading the stock correction of over 25.96% in the last six months (as of December 14, 2015). WPL also narrowed its production forecasts for FY16 on the back of current challenging market conditions adding more pressure to the stock performance. On the other hand, WPL is enhancing its operating efficiency and finished Pluto turnaround enhancement activities with which production rates improved by 3% to more than 4.3 mtpa capacity. The group finished its initial resource evaluation for the Pyxis-1 gas discovery, leading to a further 68 MMboe of net contingent recoverable resources.
 

Third quarter performance (Source: Company Reports)
 
The group got necessary approvals for Browse FLNG Development while offloaded its non-core assets to boost its cash flow by selling its Laminaria-Corallina Joint Venture interests. WPL updated that the North West Shelf Project participants have approved the Greater Western Flank Phase 2 Project with regards to the development of 1.6 trillion cubic feet of raw gas. Meanwhile, the recent correction in the stock placed WPL at cheaper valuation with a lower P/E of about 8x. WPL has a very high dividend yield of about 10.5%. We believe WPL could recover from the current levels and accordingly reiterate our “Buy” recommendation at the current price of  $26.20
 
 
WPL Daily Chart (Source: Thomson Reuters)
 

Santos Ltd

STO Dividend Details
 
Boosting capital position: Santos Ltd (ASX: STO) shares plunged over 19.13% (as of December 14, 2015) in the last one month like its peers impacted by the OPEC decision of not to reduce the output in spite of falling oil prices. On the other hand, Santos is boosting its capital position and is raising over $2.5 billion equity to offset the group’s performance pressure to a certain extent. The group recently finished retail shortfall bookbuild and sold over 152 million retail entitlements worth of $585 million. The retail shortfall book build clearing price is $4.1 which is 6.5% more than the offer price. STO is enhancing its resource position, focusing on operational efficiency and also enhancing its LNG sales volume via GLNG’s production contribution. Santos also has an outstanding dividend yield of 7.8%. STO’s capital and resource position along with future recovery of oil prices would drive the stock and accordingly long term investors might consider adding STO to their portfolio and leverage the recent correction. Based on the foregoing, we reiterate our “BUY” recommendation at the current price of  $3.28
 
 
STO Daily Chart (Source: Thomson Reuters)

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