A diversified natural resources company and among the world’s largest producers of major commodities, including aluminium, coal, copper, iron ore, manganese, nickel, silver and uranium, and has substantial interests in oil and gas. I have a holding in my income portfolio (epic code: BLT).
Bhp Billiton updated the market on Wednesday on half-year production. They stated that Group production increased by 9% during the period and production guidance remains unchanged and are on track to deliver Group production growth of 16% over the two years to the end of the 2015 financial year.
By major resources:
Metallurgical coal production increased by 21% to 26 Mt
Iron Ore production increased by 16% to a record of 113 Mt.
Petroleum production increased by 9% to a record 131 MMboe
Copper production decreased by -2% to 813 kt.
For the other resources, that will form a planned demerged company sometime this year, had the following changes to production: energy coal -3%; alumina 1%; aluminium -16%; manganese ores +7%; manganese alloys +23% and Nickel -11%.
More critically were the declines in prices for the major resources compared to last year:
Metallurgical coal -23%
Iron Ore -38%
Petroleum -17% (oil)
Copper -11%
To help mitigate these price decreases, management are reducing costs and improving both operating and capital productivity across the Group faster than they originally planned and, in Petroleum, they will reduce the number of rigs they operate in their onshore US business by approximately 40% by the end of June.
Not unexpectedly, this is the worst performing share in my income portfolio over the past 12 months, but still remains a core holding (5% of my income portfolio), for its exposure to basic materials and its record of paying an increasing dividend. I am expecting a 30% reduction in earnings this year, but that will still leave the expected dividend covered and with the planned reduction in capital expenditure may also be covered by free cash flow.
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