BHP Stock: Mining the Recovery for Profits

Advertisement

Last week, mining behemoth BHP Billiton Limited (BHP) celebrated the shipment of its one billionth ton of iron ore to China. Based in Melbourne, Australia, BHP is the biggest commodity producer in the world and boasts plenty of other accomplishments these days.

BHP Billition stockBHP Billiton mines and refines copper, silver, lead, zinc, molybdenum, diamonds, uranium and gold — the raw materials of modern industrial society. BHP also provides base metal concentrates to custom smelters and copper cathodes to rod and brass mills and casting plants.

BHP stock sports a market cap of $126.1 billion and operations in more than 25 countries. With a rock-solid balance sheet and ever-efficient operations, BHP is boosting production for 2015 via new projects, positioning BHP for growth as global recovery gains traction.

BHP stock stands to be the major beneficiary in the commodity producing sector next year, as demand for iron ore and other raw materials grows. The company and its competitors Rio Tinto (RIO) and Vale (VALE) together command nearly 70% of the world’s seaborne iron ore market, but BHP has crafted the best cost structure and most efficient production operations among its peers.

Indeed, management’s goal is to generate $4 billion worth of cost savings by 2017 throughout all of the company’s assets. Efficiency is an important advantage for BHP stock, because the price of iron ore is not rising, despite increasing demand. Paradoxically, fears that China’s economy is flagging are dampening commodity prices, while at the same time the Middle Kingdom can be counted on to need massive quantities of commodities into the foreseeable future.

Regardless, construction projects are humming around the world and consumers in North America are buying more and more cars. It adds up to greater steel production, which in turn boosts demand for iron ore. This confluence of trends puts low-cost iron ore producers such as BHP Billiton in the sweet spot.

BHP Stock Earnings: The Raw Material Truth

BHP Billiton announced stellar operating results for fiscal year 2014. The company’s earnings came in at $5.18 per share of BHP stock, a year-over-year jump of 23%. Revenue reached $67.2 billion, an increase of 1.9% compared to last fiscal year, driven by a 9% year-over-year increase in production volumes.

The company’s iron ore production in 2014 hit 203.6 million tons, an increase of 20% year-over-year. Copper production increased 2% to 1.7 million tons.

In fiscal 2014, BHP Billiton finished six large-scale projects that should further boost production volumes in 2015 and beyond. Despite these investments, cost cutting helped slash overhead in 2014. Excluding finance costs, expenses were $46.5 billion, down 7% year over year.

What’s more, BHP stock sits on an ample cash hoard that will help cushion it from any unexpected downturns in 2015. For fiscal 2014, BHP reported cash of $25.4 billion from operating activities, compared to $20.2 billion in the previous fiscal year.

Commodity markets continue their rebound as global economic recovery — albeit uneven in some countries — boosts demand for the basic materials that are the bread-and-butter business of BHP Billiton. Investors can count on BHP stock to show iron-clad appreciation in the months to come.

As of this writing, John Persinos did not hold a position in any of the aforementioned securities.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2014/12/bhp-stock-bhp-billiton/.

©2024 InvestorPlace Media, LLC