BHP Billiton must adapt or face broken future
Conventional weather forecasts are often of little use to small-scale farmers because they tend to cover huge areas and use unfamiliar technical terms.
“Near normal rainfall means nothing to rural farmers,” Masinde said. “Some don’t even have access to media used for forecasts, like televisions.”
Masinde was last month named a winner in South Africa’s annual Women in Science Awards, taking the prize in the category of Distinguished Young Women Researchers: Research and Innovation.
The award came with R75 000 in prize money which she said would go towards establishing a drought mitigation centre in the Free State.
Last month, the SA Weather Service partnered with Masinde’s institution to begin the process of rolling out the tool.
She is working with a team of researchers and postgraduate students to put the tool to use in the Free State and some parts of KwaZulu-Natal.
“In the future, anyone with access to the internet can access the forecasts generated from the tool,” she said. – Thomson Reuters Foundation MINING has always been a business of booms and busts. In a story that has been told for more than a century, one founder of BHP Billiton had so little faith in its prospects that he traded away stock on the outcome of a card game. Fast forward to 2011, and the same business briefly had the world’s largest market capitalisation after Exxon Mobil, PetroChina and Apple.
Now, the world’s biggest mining house is in the doldrums. Last month’s $6.4 billion (R87.35bn) annual net loss was the deepest in BHP’s history. Worse still was an admission alongside the results that a coming glut of steel scrap may lead to the obsolescence of blast furnace technology. That once unlikely scenario has been increasingly mooted by market watchers, but it is rare to hear it voiced by a company that gets nearly 100 percent of its profit from steelmaking materials.
The dismal outlook is spreading to credit analysts too. BHP’s debt metrics will be below their target ranges in the fiscal year through June, according to S&P Global and Moody’s Investors Service, even as rivals Rio Tinto, Vale and Fortescue Metals have been upgraded.
That is symptomatic of a deeper malaise. Among its peers, BHP has the highest forward price-earnings ratio, but the lowest return on invested capital, suggesting shareholders’ estimation of the stock is running some way ahead of the company’s demonstrated ability to make productive investments.
Of BHP’s three major divisions, only iron ore is generating more operating income than it is sucking up in capital spending. About $3.1bn exited the petroleum unit last year in capex and adjusted operating losses, while copper capex that ran well ahead of earnings left shareholders another $1.7bn short.
This is no reason to fret, yet. BHP is the biggest producer of this year’s best-performing hard commodity: coking coal – worth 264 percent more at spot prices now than it was at the start of the year. Thermal coal, iron ore, natural gas and crude oil – four of its other major products – are also up more than 25 percent this year. Only copper, which accounts for about a quarter of sales, has failed to join the party. Furthermore, analysts expect net income will rise and net debt will fall in every one of the coming four financial years.
The bigger problem lies further off. Five years ago, when BHP was at its peak, it seemed to have a finger in every raw material around the globe.
In theory, that gave it the same sort of benefit fund managers get from diversity: weaker returns when particular constituents surge, but greater resilience when they plummet.
After spinning off most of its base-metals business into South32, BHP is looking less like a passive index fund and more like an active manager with a certain point of view.
If the world continues to demand more blast-furnace-produced steel to stiffen buildings and petroleum to power transport over the next few decades, BHP has the goods. On the other hand, if Saudi Arabia is right about the future of petroleum and BHP itself is correct about blast furnaces, the company risks being left with few worldclass assets beyond its giant copper mine at Escondida.
Should the current global hunger for heavy construction wane, Rio Tinto will still have a world-beating aluminium portfolio and, more importantly, the bauxite ore from which it is made. Anglo American will be sitting on the world’s best diamond and platinum businesses, and even Canada’s Teck will have a zinc unit that has made profits year in, year out.
The last thing shareholders want to see is more heavy investment and acquisitions, but if BHP wants to survive another century, it’s going to need to spend up to shift focus. Mining companies are like sharks – if they don’t keep moving forward, they die. – Bloomberg