BHP Billiton (BLT:LSE) 2002-12-01
The BHP name comes from Broken Hill, a mining area in dating back to the nineteenth century where the company was founded on the back of silver, lead and zinc deposits. Later it diversified into mining iron ore and steel production, expanded further into shipping then struck oil in 1967 in the Bass Strait of Australia. International expansion followed with the acquisition of mining businesses involving coal and copper in the U.S.A and South America, diamonds as well as other Australian mines and natural gas strikes etc.
Billiton was formed by Dutch investors in 1860 to exploit a tin mining concession on an island of that name. The company expanded and moved into tin and lead smelting in Holland and bauxite mining.
In the 1970s, it was acquired by Shell and in the 1990s was floated on the stock market. Considerable international growth took place in the nineties.
Billiton was alone big enough to become a member of the FTSE100. Eventually these two very large companies merged to become the group BHP Billiton. BHP Billiton is now the world’s largest diversified-resources company. It is an Anglo-Australian company. Its shares trade on the ASX (Australian stock exchange) and LSE (London stock exchange) and on the NYSE as an ADR.
The company exports coal for the steel industry and mines ore, copper, aluminum, and has huge interests in oil, natural gas, nickel, diamonds, and silver.
It has a market cap of $61.4 billion, a P/E of 18.13, and pays a dividend of 1.93%. Its earnings grew by 20% over the past year and analysts are estimating an 83.9% earnings growth for this year and 25.4% for next year.
The fundamentals for this company are excellent. It is in the rising natural resources sector. Gold is on the up, oil is going up, gas is going up and even coal is expected to go up 30-40% next year and iron to go up more than 100%. This company is involved in it all.
BHP is on track to increase its oil production by 40% to 180 million barrels by 2008. Its oil and gas operations make up 34% of its earnings. BHP also has a share buy back program and is planning on buying back 180 million shares.
In addition to all the above, it is also perfectly poised to profit from the energy crisis.
China is using more and more oil, natural gas, and coal. It is going through a construction boom to create more power plants, which is putting a strong bid under steel prices, and they are already cranking up development of new coal-burning plants. Their construction could help ensure stronger long-term demand.
Steel demand, also remains robust in the U.S.A, and other countries. As a result, supplies of coking coal, the type used in steel mills, remain tight. All this is good news for BHP Billiton. It plans to dramatically increase its coking coal production to 100 million tons a year by 2010,
Commodity companies are notoriously volatile, especially in the short term. But BHP is the world’s premier, blue chip commodity play and a perfectly diversified vehicle for participating in what could be a long commodity bull run.
Buy BHP Billiton (BLT:LSE) up to 400p and hold on to it long term.