BHP Billiton Limited reports big growth opportunities

Credit: Lucas Walters

Mega-miner BHP Billiton Limited (ASX: BHP) released its quarterly report for the 9 months to 31 March 2016 to the market this morning.

Although output was down, management again confirmed the company’s full-year production targets and outlined the company’s plan to generate growth once commodity markets improve.

Here were the highlights:

  • Production of all commodities fell, with petroleum down 4%, copper down 8%, energy coal down 10%, and iron ore/metallurgical coal both down 1%
  • On track to deliver an average unit cost improvement of 14% across major assets compared to the 2015 financial year
  • Several investments deferred because of low commodity prices; can ‘bring high-margin volumes to market when the time is right

BHP is following what appears to be the global handbook for resources companies at the moment, conserving capital by deferring investment and focussing on reducing costs and divesting non-core assets. Management focussed on the volumes that the company could potentially bring to market when conditions improve, thanks to a substantial pipeline of projects. There was no sign of when that might be, however.

One interesting development was the announcement of US$640 million (2015: US$567 million) to be spent on exploration of the group’s petroleum opportunities. BHP is still heavily invested in oil and gas despite the recent decline in market conditions.

Like fellow miners Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG), BHP is also heavily exposed to the value of iron ore, which is one of its largest commodities. However, BHP is theoretically more robust thanks to its diversified portfolio which also includes copper, coal, petroleum, and potash. That hasn’t helped shareholders, given that all of these commodities are down in the doldrums, but BHP shares have been less volatile than Rio and Fortescue.

Now What?

Any investor buying the mega-miner today is implicitly taking a bet on commodity prices, and would be wise to do some research on the market forces affecting each of BHP’s commodities before doing so. BHP chose to emphasise all the opportunities it has that it is currently not utilising, but if commodity prices stay low for longer, investors could be parking their cash in a vehicle going nowhere.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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