INSIDE INVESTOR: Why BHP is back in the good books

Not long ago, BHP Billiton boss Marius Kloppers was copping criticism left, right and centre. But the commodity equation has since realigned and the mining giant is back on top.

Marius Kloppers may be no Julie Andrews.

But after a horror run through the middle of the year, when commodity prices slumped and billions had to be written off from his one major acquisition – shale gas projects in America – it seemed he would need to join the Von Trapp family and make a getaway in the dead of night.

Not any longer. Kloppers has rapturous investors world-wide singing "The hills are alive….” in unison. Broken Hills that is. Or BHP Billiton as it is known these days.

Just goes to show how fickle an audience can be. But a great deal has gone right for the world’s biggest miner in the past few months, and that has been reflected in a lifting share price.

For a start, China is back in business. With its leadership change out of the way, and all signs pointing to improved growth, BHP is well placed to take advantage of a renewed growth spurt in the world’s most dynamic economy.

But there have been some major changes internally, as well. The resources giant has become far more focused on cost and capital management. It has shelved many of its mega projects, which were pushed through during the height of the boom. And it has begun selling projects or interests in projects that do not fit its strict investment criteria of long life, world class projects, preferably which it controls.

Some of the projects shelved include the expansion of the Outer Harbour at Port Hedland in Western Australia and the massive expansion of the Olympic Dam project in South Australia. Projects sold include its EKATI diamond project in Canada and its stake in the controversial Browse gas project, with its planned processing facility on the Kimberly coastline, in Western Australia.

And while it was forced to write down the value of its expansion into shale oil in the US, following a sharp drop in gas prices as supply expanded, it reacted quickly by moving rigs off gas rich fields and into fields that contained more oil. Oil prices have been restrained for months now. But with political uncertainty in the Middle East, it is unlikely they will fall further and there is every chance they will rise.

Given its exposure to minerals and energy, its new focus on keeping costs under control and freeing up cash from the sale of unwanted projects, it is little wonder the Big Australian is back in the investment good books.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles