BHP predicts further price falls

Falling commodity prices refocus miner

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Falling commodity prices have forced giant miner BHP Billiton (ASX: BHP) to refocus on its core operations, stopping investment in some areas while selling off non-core assets.

BHP’s CEO Marius Kloppers has told the ABC’s Inside Business program that he expects most commodities prices to revert back to long-term price ranges – in simple terms to fall, raising concerns for pure-play Australian miners, especially iron ore miners Fortescue Metals Group (ASX: FMG) and Atlas Iron Limited (ASX: AGO).

BHP itself plans to offset falling prices by increasing volumes by at least 10%, despite China’s growth slowing. The company has also said that it is looking to exit its titanium and diamonds business, and that it has put on hold any further investments in its aluminium and nickel operations.

Mr Kloppers noted that the company is focusing on five main areas of operation, which are iron ore, coal, copper, oil and gas. He added that BHP hopes to gain some exposure to food production. No, the company is not going to buy McDonalds, but is looking to increase its exposure to potash, a product widely used in most fertilizers.

You can see why BHP wants to gain exposure to agriculture.  According to a report (PDF) by some of the world’s leading water scientists, the world’s population may have to switch almost completely to a vegetarian diet over the next 40 years to avoid catastrophic food shortages, as the planet’s population swells to around 9 billion by 2050.

As part of its plans to divest non-core assets, today BHP announced that it was selling its Yeelirrie uranium deposit in Western Australia to Canadian miner Cameco Corporation, the world’s largest uranium miner, for US$430 million.

The company is also in the process of selling off its 37% interest in South Africa’s Richards Bay Minerals, a mineral sands miner and leading producer of chloride titanium, to Rio Tinto Limited (ASX: RIO).

Other asset sales may be in the pipeline. BHP is focusing on essential commodities – iron ore and coal used in steel production, copper is widely used in many products, and coal, oil and gas for energy generation.

While uranium is also used for energy, the company may be taking the view that in the short-term, post the Fukushima nuclear disaster, there’s going to be slow demand for it, while over the long-term it still holds the giant Olympic Dam uranium/copper mine. The increasing availability of gas may also cut down the need for nuclear power.

The Foolish bottom line

BHP has always said that it takes a long-term view. These moves appear to confirm its stated aims.

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Motley Fool writer/analyst Mike King owns shares in BHP. The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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