BHP (BHP)

By Jason Fittler

The company’s share price has been sitting around $30, which makes it good buying.

But, if you spend your time listening to the government and media whine on about resources, you would think BHP was all but gone. 

It is paying a 5% gross dividend and has over 10% upside; we have been acquiring this company on weakness for some time now.

But, here is the kicker. 

BHP Billiton intends to simplify its portfolio by demerging a group of high-quality assets to create an independent global metals and mining company, South32.

Under the proposal, Eligible Shareholders would retain their existing shareholding in BHP Billiton and receive a new share in South32 for every BHP Billiton share held (at the applicable record date).

Approval for the demerger is being sought at shareholder meetings to be held in Perth and London on 6 May 2015.

South 32 has been valued around $2.98 and hence we saw the price of BHP jump on Friday.

We expect the prices of BHP's key commodities to be subdued over the next few years. With iron ore and copper moving into oversupply, coal already oversupplied, and petroleum is suffering from an industry player who is looking to rebalance the market and prompt high-cost players to assume the mantle of swing producer.

Earnings should, however, be supported near term by currency moves (weaker A$, rand etc.), volume growth, and further cost cutting.

From a top-down perspective, we are concerned European growth may remain subdued for longer, and that the structural imbalances in China may result in slowing demand and a challenging environment for commodities.

However, we see some evidence that the mining industry is starting to operate in a more disciplined way, which bodes well for the longer-term supply/demand outlook.

For more information about BHP (BHP) please contact us on 07 4771 4577.