BLT dilemma

[miner1000]

BLT profits derive of mainly two things

1. Iron Ore - up from where it was last year (around $80p/t)
2. Oil - up from where it was last year

copper and other metals are loose change compared the above two.

Er.....not quite.

Copper is by far the most sensitive commodity in the BHP Billiton portfolio. They have some of the largest copper mines in the world (Olympic Dam, in Australia, Escondida and Pampa Norte in Chile, Antamina in Peru). These operations are huge. Every US$0.01 (yes, 1 US Cent) change in the copper price affects BLT income by US$88 Million. Iron ore is also huge (and the legal case over the Samarco tailings dam failure is still hanging over their heads) and coal and nickel are very significant. Petroleum provided US$6.9 Billion dollars to 2016 revenue, Copper and Coal provided $12.7 Billion and Iron ore about $10 Billion out of a total revenue of US$30.9 Billion. The 2016 loss was US$6.2 Billion or about US$1.20 per share.

Do your own forecasting on commodity prices (I have already given you mine) but the OPEC agreement is not going to turn BLT around very quickly. They need a good upturn in Iron ore and copper prices, and they need it to happen soon.

Just my six-penny worth as usual.

Best of luck to those holding.

Miner

[minerjoe]

I would agree to a certain extent, but the gearing of BHPs Iron means its a real money driver for them. Iron ore makes up 34% of BHP Billiton’s (BHP) revenues and 45% of its EBITDA (earnings before interest, tax, depreciation, and amortization).

Current cash cost estimates put them around $15/t FOB into China and they make as of August 227mt. Every $1 put another $277m into shareholders pockets. So I think Iron ore is much more important than say copper to BHPs revenue and cash machine.

From their own results

http://www.bhpbilliton.com/~/media/bhp/ ... .pdf?la=en

Oil is at $10 per barrel produced - a nice margin to me

When I worked on a gold mine I had to explain to someone that a $100 move in the price doubled our profits as we were AISC at $1000 and selling for $1100 so a move to $1200 wasn't a 10% increase, it was a 100% increase.

How did you arrive at the $0.01 to $88m - Always interested in adjusting my thinking regards to these sorts of things!

[miner1000]

How did you arrive at the $0.01 to $88m - Always interested in adjusting my thinking regards to these sorts of things!

From page 24 of the 2016 Annual report, where as you will see below I made an error. The actual amount is $32 million per 1c change in the copper price, which has fallen from over $4 per pound to $2.64 /lb today. A loss in revenue of around $4.3 Billion,

The prices we obtain for our products are a key driver of value for our business. Fluctuations in these commodity prices affect our
results, including cash flows and asset values. The estimated impact of changes in commodity prices on FY2016 Underlying EBITDA
are set out below.
US$M
US$1/bbl on oil price 88
US¢10/MMBtu on US gas price 37
US¢1/lb on copper price 32
US$1/t on iron ore price 201
US$1/t on metallurgical coal price 34
US$1/t on energy coal price 16
US¢1/lb on nickel price 1

All figures at the end of each line are in US$ Million but I cannot get this to format. You are correct when you say that each $1 per tonne in Iron ore adds (or subtracts) about $200 Million EBITDA.

I think it may be one for value investors, but not for me.

Miner

[ReformedCharacter]

OK folks, it's pickering time again.

So, help me with my pickering on this one. Having gone through a large amount of pain, should I wait for the slow return of gain? - or cut now. What would you do, and what are holders of BLT doing?

Arb.

The larger mining companies are surely the epitome of a LTBH share. Buy them and never sell them. As I mentioned once elsewhere, when I was a still wearing short trousers my father told me that he had had his portfolio 'reviewed by a stockbroker'. The stockbroker told him he was overweight in Rio Tinto Zinc. My father said he didn't mind because 'the demand for metals looks likely to continue'. I'm pretty sure that if my father was still alive - he would be 103 - and held on to his shares, they would have made him considerably wealthier.

I doubled my holding of BLT by two big purchases in December 2015 and January 2016, getting in at 716p and 596p

Well done, now just resist the temptation to ever sell them!

RC

[minerjoe]

right I'm with you - I thought it was per/lb so your answer makes sense. Putting that into metric its $32m per $220 increase per metric tonne of copper sale price.

Current copper is $5800 per tonne (approx) - so for every 3.7% increase in the copper price BHP gets $32m more.

If we compare apples with apples on price increases, a 3.7% rise in iron ore price would add $660m to BHPs bottom line - 20x more profitable to their bottom line in % rise terms.

The same of course also applies to RIO which is even more geared to Iron prices. All fine when the price is going up, but terrible should the price fall too far! Still being Q1 on the cost curve affords some level of comfort as they can squeeze everyone out with volume.

[tjh290633]

Don't forget the effect of demerging South32, which took a lot of the more expensive minerals, plus some thermal coal. See https://www.south32.net/our-operations for an outline.

TJH

[miner1000]

Hi Minerjoe,

I think a small error in your calcs. It is $32 Million for every $22 per tonne increase or decrease (you were out by a factor of ten, but as I made the first mistake, that is one each).

Just by way of comparison, I was in the copper business for 40 years. For the first 30 years, the price rarely went above $2,204.00 per tonne ($1/lb).

The 50 year moving average is still far lower than the current price, so if copper ever went back to its long term trend (and I am not saying that it will), BLT would bleed cash. I think it has every chance of going back to less than $2.50/lb ($5,500.00/T) and staying there for a long period. In fact $2/lb or less is on my radar for 2018.

That said, if I owned BLT (which I don't) I would not sell. Too much risk of making a bigger error with the sale proceeds (yes Dodd, even Legal and General).

[minerjoe]

Hi Miner,

I realised in the car when driving that, ironically, "I forgot to carry the one!" - Cliche

It should be $22 you are totally correct