BHP Shares Update

Submitted by Craig Strzelecki on 27 March, 2007 - 19:13

BHP have had their shares recommendation updated and their Outperform recommendation has been reiterated and have had their their price target increased to $34.19 per share from market analyst Macquarie Research Equities. The analysts have continued their tour of South American mining assets, this time visiting the Alumar alumina refinery and smelting operations in Sao Luis, Brazil. BHP Billiton (BHP) boasts a 36% interest in the refinery and a 40% interest in the smelter. The Alumar refinery partners, Alcoa and BHP Billiton, are investing US$2.0bn to expand capacity at the refinery by 2.0 milllion tonnes per annum (mtpa), representing a step change from the current capacity of ~1.5mtpa. The US$1,007 investment per annual tonne of capacity is indicative of the inflationary pressure plaguing brownfield refinery projects in the western world. That pressure, and general operating cost inflation is clearly supportive of the 'bulls' call for a higher long term alumina pricing protocol, although the evolution of the Chinese industry is more likely to be the key swing factor. Management has suggested the expansion should see cash costs decline by 20% as the benefits of scale and cogen power generating capacity take effect. Further, the quality of the refinery and the benchmark conversion cost performance which it should achieve further supports the analyst's assertion that the Alumar refinery is a particularly good long term proposition. By contrast, the smelter appears to have seen its best days as it has effectively 'mined' its initial 20 year, low cost power contract for maximum benefit. Therefore, looking ahead, MRE believe that the Alumar smelter should be thought of as a well-managed operation that will continue to deliver robust margins that are reflective of its position in
the mid-to-upper band of the cost curve. Management's confidence that the 2mtpa refinery expansion can be commissioned and ramped-up over a four month period certainly took the analyst by surprise. With that in mind, the analyst will likely take a more conservative view (ie 6–12 month ramp-up) in their post trip revisions. The analyst expects to model modest earnings upgrades when they return to Australia but, more importantly, they note that they have found nothing to alter their view that BHP Billiton's portfolio is capable of sustaining a step change in the company's earnings profile.

BHP Billiton Limited is listed on the Australian Stock Exchange (ASX) under stock code BHP. You can view their investor website here. BHP was listed on the ASX on 13 August, 1885. Charles "Chip" Goodyear is the CEO of BHP Billiton and Don Argus the Chairman. BHP Billiton was created through the Dual Listed Companies (DLC) merger of BHP Limited (now BHP Billiton Limited) and Billiton Plc (now BHP Billiton Plc), which was concluded on 29 June 2001. BHP Billiton Limited and BHP Billiton Plc continue to exist as separate companies, but operate on a combined basis as BHP Billiton. The headquarters of BHP Billiton Limited, and the global headquarters of the combined BHP Billiton Group, are located in Melbourne, Australia. BHP Billiton Plc is located in London, United Kingdom. The company is principally involved in minerals exploration, production and processing (particularly coal, iron ore, copper and manganese ore) and hydrocarbon exploration, production and refining. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade BHP. Check your charts and good luck with your share trading!