BHP BILLITON

Predicting the commodity cycle is fertile ground for charlatans, mountebanks, students of haruspicy, and indeed technical analysts. BHP Billiton appears to take a sensible approach to the noble art by ignoring it completely, concentrating instead on establishing lowest-cost producer status in its chosen commodities and sweating its assets until they look like Rafa after an afternoon start at the Australian Open. Its latest production report shows that the business chunters on, focusing on getting its production numbers up and keeping costs down. Sure, the iron ore and petroleum prices have collapsed, but BHP Billiton greets the news with a philosophical shrug, maintains the dividend and opens another tinny, while its higher-cost rivals are busy breaking covenants, passing the begging bowl around banks and shareholders and generally trying to stay in the game. The major impact of tanking prices is that BHP Billiton will be cutting back its US shale operation by 40%, reducing its active rig count from 26 to 16 by July. This is the great beauty of shale, that whereas establishing and operating a major mine is like a marriage, and a long one at that, a shale rig is more like a onenight stand, a quick in and out and you can sneak off before breakfast if circumstances demand it. Tough times and weak prices may weed out the weaker competitors, but this big boy’s going to be around for the long haul, and it’s a compelling proposition to be able to tuck in to an operation of this quality at a discount to the market, with a dividend yield over 5% and the prospect of a bit of fizz from its spinoff company, South32. Vital numbers on January 26 2015 Share price (R) Market cap (Rbn) P:e ratio Earnings yield (%) Dividend yield (%)