BHP is trimming back on all fronts

Shares at lowest in 11 years Investor angst knocks top producer

BHP BILLITON, the world’s biggest mining company, trimmed its full-year iron ore forecast after its Brazil joint venture was halted following a dam breach in November that killed at least 17 people. The shares fell to the lowest level in 11 years in Sydney trading.

Production should be 237 million tons in the 12 months to June 30 from a year earlier, compared with its July estimate of 247 million tons, Melbourne-based BHP said yesterday. Samarco, jointly owned by Vale, has been halted since a dam failure that Brazil’s government described as the country’s worst environmental disaster. Vale last month cut its full-year output guidance by as much as 10 percent.

“Iron ore production was probably a little under expectations,” Ric Spooner, the chief analyst at CMC Markets, said. “There are no upside surprises in this, and in an environment where the markets are negative on the sector, that lack of upside surprise could create a bit of price disappointment.”

BHP dropped 3.5 percent to A$14.21 (R164.21) in Sydney trading, the lowest since January 2005. The producer has plunged 45 percent in the past 12 months.

The Brazil disaster and the plunge in prices of commodities from iron ore to oil have helped drag BHP’s shares down. The $4.9 billion (R82.02bn) post-tax write-down on the value of its US shale oil and gas assets flagged last Friday and additional charges of as much as $450 million announced yesterday, added to concerns over BHP’s ability to retain a dividend policy that seeks to maintain or raise returns each year.

Supply gluts

BHP BILLITON is suffering the investor angst that has beset rivals such as Glencore and Anglo American in recent months.

A measure of volatility over 10 days on BHP’s London stock jumped to the highest since September 11 yesterday.

The stock tumbled as much as 8.3 percent in London trading to its lowest in more than 10 years, extending its decline this year to 24 percent.

BHP Billiton’s drop this year has outpaced declines by Glencore and Rio Tinto in London. Anglo American and Glencore were the two worst performers on the UK’s FTSE 100 index last year, tumbling 75 percent and 70 percent, respectively. BHP dropped 41 percent.

The stock traded down 8.2 percent at £5.76 (R138) by 1.07pm local time, making it the worst performer on the FTSE 100 yesterday. BHP has fallen amid concern its dividend would be cut and on the rising financial risk stemming from a Brazilian dam disaster that killed 17 people.

The Bloomberg commodity index, a measure of returns for 22 raw materials, is at the lowest since at least 1991.

The Bloomberg world mining index of 80 stocks slumped to the weakest since 2003 as fears of slower economic growth in China and a slump in oil prices fuelled a fresh bout of selling.

Falling prices for four major commodities that BHP produces are eroding profits. – Bloomberg