BHP BILLITON LTD. ADRs $28(New York symbol BHP; Conservative Growth Portfolio, Resources sector; ADRs outstanding: 2.7 billion; Market cap: $75.6 billion; Price-to-sales ratio: 2.1; Dividend yield: 2.3%; TSINetwork Rating: Average; www. bhpbilliton.com) is a leading producer of iron ore (35% of revenue), oil and natural gas (25%), copper (25%) and coal (15%). It has major operations in Australia, the U.S., U.K., Chile and South Africa.
BHP reports its earnings twice annually. In the first six months of its 2016 fiscal year, which ended December 31, 2015, the company’s revenue fell 36.8%, to $15.7 billion from $24.9 billion a year earlier. Earnings dropped 91.6%, to $0.15 per ADR (or a total of $412 million) from $1.84 per ADR (or $4.9 billion). Each American Depositary Receipt represents two BHP common shares.
In response to weak commodity prices, BHP has focused on improving its efficiency. So far, it has cut $10 billion from its annual costs. The company expects to realize another $2.1 billion in annual savings by the end of fiscal 2016.
In addition, BHP has cut its capital spending by 45.6%, to $7.0 billion in fiscal 2016 from $12.9 billion in 2015. The company also expects capital spending will fall to $5.0 billion in 2017. BHP’s long-term debt of $32.5 billion (as of December 31, 2015) is a manageable 43% of its market cap. At that time, it also held cash of $10.7 billion.
The company’s new dividend policy will also help it conserve cash until commodity prices recover. It will now pay a dividend (twice a year) equal to a minimum of 50% of its earnings before unusual items. As a result, it paid $0.32 per ADR in March 2016, down 74.2% from $1.24 in September 2015. The implied annual rate of $0.64 yields 2.3%.
BHP also owns 50% of the Samarco iron ore mine in Brazil; resource firm Vale SA owns the other 50%. That partner is based in Rio de Janeiro and operates the project. In November 2015, a dam next to the mine burst. The site, and communities up to 100 kilometres away, was flooded.
BHP expects to re-open the mine sometime in 2017. It, along with Vale, will also contribute a total of $6.2 billion to a cleanup fund— BHP’s share of these costs is $3.1 billion. The companies will pay out these funds over the next 15 years.
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