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Why Macquarie Group Ltd just slapped a $30 share price target on BHP Billiton Limited

miner holding gold nugget
Image source: Getty Images

According to financial news wires the analysts at investment bank Macquarie Group Ltd (ASX: MQG) have reportedly put a bullish $30 share price target on Australia’s largest miner in BHP Billiton Limited (ASX: BHP).

The Macquarie analysts reportedly enjoyed BHP’s latest update provided by its CEO at the Merrill Lynch Mining Conference in which a plan to cut costs and lift production by the “release of latent capacity across the portfolio” was outlined.

Plans to grow profits on the relative cheap by investing in “latent” capacity rather than new projects are always popular with investors and BHP’s share price edged higher in afternoon trade.

At the conference the BHP chief also outlined plans for “major growth projects” valued at up to US$25 billion that could offer “potential average returns of over 16 per cent at consensus prices.” Some of the projects under consideration are at the group’s Olympic Dam site and elsewhere around the world.

The CEO also addressed the future of BHP’s shale oil assets by flagging that all options were on the table for them including “asset sales”. This is likely to please activist investors who recently have been campaigning for BHP to realise value by selling them off.

BHP is similar to other giant energy and mining plays such as Woodside Petroleum Limited (ASX: WPL) or Rio Tinto Limited (ASX: RIO) in that the direction of its annual profits and share price is leveraged to the direction of commodity prices. That’s because these businesses are price takers and cyclical in nature, which means it’s possible to make money investing in them, but you need some luck timing the market.

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Motley Fool contributor Tom Richardson owns shares of Macquarie Group Limited.

You can find Tom on Twitter @tommyr345

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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