One Blue-Chip Miner with Significant Exposure to Global Resources – BHP Billiton Limited

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Australian Economy, Macro Economics

Listed separately on different stock exchanges, BHP Billiton Limited (ASX: BHP) is already known as a global resource giant based on its exposure level. Incorporated in late 1800s, BHP Limited later-on in 2001, became BHP Billiton Limited post-merger with Billiton Plc. Then in 2017, some of the Billiton assets were rebranded as South32. The headquarter of the company is situated in Melbourne, Australia and is being currently looked after by Mr. Ken MacKenzie –the chairman.

BHP is one of the leading producers of natural resources in the world. The company has four main verticals i.e., Petroleum, Copper, Iron ore and Coal which contribute significantly to the total revenue and earnings. The company exports its product mix portfolio to Europe, China, Japan, India, South Korea, North America, South America, Rest of Asia and Rest of the world. On geographic front, the company generates a large proportion of sales from its export market while remaining comes from domestic market. Of which, Asia region contributes to the maximum of total overseas sales with key contribution from China region. Further, emerging Asia is expected to drive long-term steel demand, with structural reform in China to support demand for quality ore. Currently, the company has more than 3000 machines which include 1300 trucks, nearly 400 loaders, 450 dozers, 240 drills and 200 excavators. BHP Billiton Ltd has workforce strength of over 60,000 employees and contractors are working across 87 locations of the globe.

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Balanced contribution across Portfolio as per Interim FY18 Result (Source: Company Reports)

Recently, the group reported about launch of new Indigenous land management collaboration across Australia’s desert country at Old Parliament House in Canberra. The 10 Desert Projects led by Desert Support Services (DSS) and enabled by the BHP Billiton Foundation will build the capacity of Indigenous groups to look after country for a range of economic, social, cultural and environmental outcomes.

During 1HFY18, the Group recorded revenue at $21,779 Mn against $18,796 Mn in 1HFY17, marking a growth of 15.9% on a year on year (YoY) basis at the back of mixed products growth and pick up in commodity prices. The company had free cash flow of $4.9 Bn in 1HFY18 and will use this cash to further reduce its debt and increase returns to shareholders through higher dividends. Underlying return on Capital Employed was 12.8%, up as compared to 1HFY17 and a further improvement is expected in future.

Moreover, the company has been paying regular dividends which reflects the sound financial health of the business. Also, BHP Billiton has shown the ability to produce positive cash flows even under tough market conditions on the strength of its wider market reach which enables the company to withstand the competition. Besides this, the Company has got an opportunity in terms of debottlenecking of existing mines, rig, port, rail and processing facilities. With this, the company will be able to produce more from existing infrastructure at lower cost. The company is on track to deliver productivity gains of $2 Bn by end of 2019 on the back of improved operating and capital productivity, aided by state-of-the art technology across the value chain.

Over the period, the group has been able to substantially reduce its unit costs by more than 40% at Australian mining operations over the last five years. It reduced unit cost by 4.0% in 2017 which helped to record decent EBITDA margin. The management further aims at cutting unit costs by ~10.0% in the medium-term. This move will be supported by diversified portfolio, standardized systems and greater connectivity across the assets and commodities. The giant miner is expected to sustain its growth momentum fuelled by increased production and driven by expansion plans. Its balance sheet position with debt reduction plan and cash flow scenario with healthy operating margin make it a valuable global miner.

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Delivering consistently (Source: Company Reports)


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