From Staff Reports
Anglo-Australian mining giant BHP Billiton Ltd. (NYSE:BHP), which on Wednesday reported a $13.42 billion fiscal 2007 profit, said today (Friday) that the nine big projects it is set to finish in India this year would all meet their targets for costs and timing.
BHP's net profit presented a 28.4% gain over its prior-fiscal-year profit of $10.45 billion. The world's biggest mining company, BHP executives said today that volume growth in India is actually leapfrogging China. Indeed, India will be driving the growth in its energy business, the company said. Incoming Chief Executive Officer Marius Kloppers said India has major potential for bauxite and iron ore, but only if the Indian government relaxes restrictions on what it's willing to allocate itself to those opportunities.
"The access to resources or types of businesses we want to run in areas where they are very-well endowed – bauxite and iron ore … those opportunities have not yet materialized for companies like ours," Kloppers said to journalists during a news-media briefing in Melbourne, Australia. He did say, however, that BHP was not talking with India about uranium sales.
BHP is not the only company that has this week made some highly favorable comments about the prospects in the India market: The Blackstone Group LP (NYSE: BX), the world's largest private-equity fund, said its buyout projects in India will not be deterred by the worldwide credit problems, the company told Bloomberg News this week.
BHP said that its yearly profit increase was driving by strong mineral sales. Higher commodity prices and the emerging economies in Europe and Asia added $7.1 billion to the bottom line, as did the record amounts of natural gas, aluminum, copper, nickel, iron ore and more that BHP mined, the mining company said Wednesday. However, rising operational costs – and fluctuations in the exchange rates – trimmed $1.5 billion from the figure, MarketWatch reported.
It said it's earmarked $20 billion for new projects, and that it was undeterred by the current market problems relating to credit and volatile stock prices.
BHP Chief Executive Chip Goodyear, who steps down in October, said nine projects due to be completed in the next 12 months were expected to be completed on budget unless there were any unexpected events such as a hurricane.
"We currently would expect to hit those budgets even though you see inflationary pressures continue," Goodyear told reporters.
Earlier in the week, BHP reiterated that it expected commodity prices to remain high in the near-term, and probably even more volatile than they already are.
Leaders predicted hefty increases in volume growth for iron ore, base metals, stainless steel and petroleum. It also said that its customers were not anticipating the worldwide demand for raw materials to be affected by the credit problems right now afflicting the world economy, and said that China and India were thought to be particularly immune, right now.
Baring Asset Management fund manager Hayes Miller is among the institutional investors who like BHP's prospects. Miller recently told the MarketWatch news service that while the company's stock was beaten down during the recent sell-off, it's "been the fastest to recover on strong days in the market."
Miller expects materials prices to remain strong. Because mining is a "capacity-constrained business … we're not expecting to see any earnings deterioration in either" BHP or in London-based rival Rio Tinto PLC (NYSE: RTP), a stock he also favors.
One reason he likes these two companies is that, right now, the bigger the better, Miller said. By his estimates, European corporations with market values of at least $50 billion are trading at a discount to small-cap shares that averages 13% or so.
European companies with market capitalization sizes of $50 billion or more are trading at an average discount of around 13% to smaller large-caps. But there's a valuation shift under way toward mega caps – in both the U.S. and European markets, he says.
The argument against this thesis is that volatility and uncertainty remain. Credit worries are hampering European banks – especially those in Germany. The dollar is actually rising against the euro. Overseas interest rates are on the march north. And the P/E ratios on several key European stock indexes have dropped between 7% and 10% since the latter part of last month.
But market turbulence remains. The U.S. dollar has been rising against the euro. Interest rates are also trending up overseas. And since late July, European price-earnings ratios have dropped about 8% on some of the most widely followed stock indexes. See also Global Investor.
Meanwhile, BHP rival Rio Tinto just announced that it had raised $40 billion to front a loan to buy Canada's Alcan Inc. (NYSE: AL).
Rio Tinto spokesman Nick Cobban , Reuters reported. The company will announce the full figures of the transaction next week when the documents are signed.
Data provider Dealogic reported that the loan is the biggest raised by a U.K.-listed company and the fourth biggest globally.