Article today21 Jan 2015 11:17
If BHP Billiton were a teenager, the mining group would be the uncool kid of the class, with spots, greasy hair and a stammer. The big Australian wraps together copper, oil and iron ore. All have been out of favour since the commodities supercycle got a puncture. Oil has slumped furthest, prompting BHP to cut its fleet of rigs pumping high-cost US shale oil by 40 per cent.
That implies the group is losing money at $46 per barrel from Permian wells where extractive donkeys will nod no more, but continues to cover costs from Texas’s Black Hawk field. Citi estimates the pullback will trim 2015 capex by roughly $1.9bn.
That is small potatoes in the context of expected spending of some $14bn. More to go, no doubt. BHP can be expected to maintain the dividend, even after spinning off the South32 subsidiary. Chief executive Andrew Mackenzie, a steady Scot, is poorly placed to increase the payout.
The shares have dropped 26 per cent in a year. Only a better world economic outlook can revive them. Writedowns may continue — the shale business cost $20bn but is valued at just $5bn by one bank. Even so, the stock looks like a haven for the modestly bullish investor. The stock boasts a forecast yield of 6 per cent, a figure associated with distressed retailers rather than big, efficient miners. The uncool kid of the class works hard and gets the grades. His virtue is his reliability.