Rising emerging market demand sent this blue chip mining stock’s earning soaring

BHP Billiton Ltd. ADRs, New York symbol BHP, is the world’s largest mining company, with major operations in Australia, South Africa, Chile and the U.K. It produces iron ore, coal, oil, aluminum, manganese, diamonds and titanium. BHP is one of the blue chip mining stocks we analyze in our Wall Street Stock Forecaster newsletter. In the fiscal year ended June 30, 2011, BHP earned $21.7 billion, or $7.87 per ADR (each American Depositary Receipt represents two BHP common shares). That’s up 73.9% from $12.5 billion, or $4.48 per ADR, in fiscal 2010. Even so, the latest earnings missed the consensus forecast of $7.16 per ADR. Revenue rose 35.9%, to $71.7 billion from $52.8 billion. Strong economic growth in China, Brazil and other developing counties continues to push up prices for many of the blue chip mining stock’s commodities, such as iron ore, coal, copper, aluminum and diamonds. In addition, BHP is expanding its oil and gas operations. It recently paid $4.75 billion to Chesapeake Energy Corp. (New York symbol CHK) for shale-gas properties in Arkansas. (Shale gas is natural gas that is trapped in rock formations. To extract it, companies must pump water and chemicals into the rock. This fractures the rock and releases the natural gas.) In July 2011, BHP agreed to pay $12.1 billion for Petrohawk Energy Corp. (New York symbol HK). Petrohawk produces oil and natural gas from properties in Texas and Louisiana. This purchase should close by September 30, 2011. These projects have big potential. However, the blue chip mining stock’s costs for labour and mining equipment are rising. That could hurt the profitability of these and other new projects. Moreover, the Australian government is considering new taxes on mining companies. That adds risk. We updated our advice on BHP in our August 26, 2011, Wall Street Stock Forecaster hotline, which you can immediately view when you take a 1-month free trial to Wall Street Stock Forecaster. Click here to get started right away. (Note: If you are a current Wall Street Stock Forecaster subscriber, please click here to view Pat’s recommendation. Be sure to log in first.)

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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One of the sweetest and most profitable pleasures of successful investing is to buy high-quality “value stocks” (or stocks that are reasonably priced, if not cheap, in relation to its sales, earnings or assets), then hold on to them as mainstream investors recognize the value and push up the share price.

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