BHP Reveals Dividend and Debt Plan for South32

The new entity will also be given $US2.2 billion of BHP Billiton's debt, in keeping with the company's promise to ensure the new company begins its life with a small and manageable debt load. Photo: Reuters

The company that will be spun out of BHP Billiton later this year will return at least 40 per cent of its underlying earnings to shareholders in the form of dividends, according to information on the demerger revealed this morning.

Dubbed South32, the new entity will begin its life with about $US2.2 billion ($2.9 billion) of balance sheet items, in keeping with the company's promise to ensure the new company begins its life with a small and manageable debt load.


About $US1.5 billion of that will be closure and rehabilitation provisions, along with $US674 million of net debt.

Some of BHP's biggest shareholders had urged the miner to give South32 no more than $US1 billion of net debt, so the details announced today were welcomed by institutional investors.

Australian Foundation Investment Company is the eleventh biggest holder of BHP's Australian stock, and managing director Ross Barker praised the low debt levels.

"That is a good thing, those resources (bound for South32) are fairly volatile so you wouldn't want a large debt on a potentially volatile company," he said.

"We are encouraged to see a 40 per cent dividend payout policy too ... on top of the fact BHP will be keeping their progressive dividend."

BHP shares were 25 cents higher at $29.65 around midday.

The man who will serve as South32's first chief executive, Graham Kerr, said the low debt levels were very important given the current market conditions.

"One thing the market often underestimates is the impact and the risk that comes with leverage, we have really thought deeply about what the balance sheet of South32 should be and we think it is at the appropriate level to allow us to fulfill the strategic priorities we think are important," he said. 

RBC Capital Markets analyst Chris Drew said the total liabilities were "in line" with the guidance from BHP.

"It is a very manageable balance sheet. The targeted payout ratio of 40 per cent is also within the range the market was anticipating," he said.

BHP's net debt will reduce slightly as a result, and BHP chairman Jac Nasser urged shareholders to vote in favour of the demerger in May.

"Having assessed a number of alternatives, the BHP Billiton board considers the demerger to be the preferred approach to achieving simplification of our portfolio and maximising shareholder value. The board unanimously recommends that shareholders vote in favour of the demerger," he said in a statement.

BHP was unable to confirm how the new company would manage its franking credit balance, saying only that South32 would distribute its dividends with the "maximum practicable franking credits".

South32 is expected to list on the ASX, the London Stock Exchange and the Johannesburg Stock Exchange before the end of the financial year, and BHP has hinted it will be primed to pursue investment and acquisition opportunities almost immediately.

The new company will start life with a $US1.5 billion revolving syndicated bank facility to ensure liquidity.

When asked about what sort of new investments South32 would be interested in, Mr Kerr said the company had to crawl before it walk, and walk before it could run.

The 11 operating assets bound for South 32 include the coal mines of Illawarra and South Africa, the manganese assets strewn across the southern hemisphere, the Cerro Matoso nickel mine in Colombia, the aluminium division and the Cannington silver, lead and zinc mine in Queensland. 

BHP estimates those assets would have generated a combined $US8.3 billion of revenue in the 2014 financial year, and would have been cash generative over the past three years.

RBC speculated recently that the demerger was a good idea, but was increasingly poorly-timed given the price collapse in some of BHP's major commodities.

But BHP chief executive Andrew Mackenzie said on Tuesday that productivity measures were more important during times of weak commodity prices.

"I can't think of a better time to do this transaction," he said.


In a recent interview, Colonial First State Global Asset Management resources portfolio manager Todd Warren said he believed the demerger still made sense despite the fall in commodity prices.

"The South32 business is much more non-OECD in its concentration and certainly does require a greater percentage of management time, so from that perspective only you can argue its a positive for BHP to simplify its business to more simple businesses to manage," he said.

Shareholders will get a chance to vote on the demerger plan on May 6.

The demerger will require $US738 million of one-off costs, such as stamp duty and fees to investment bankers such as Goldman Sachs, but Mr Mackenzie said that was "good value for money from a superb cast of advisors" whose efforts had been "herculean".

The likes of KPMG, Grant Samuel, Herbert Smith Freehills and Ernst & Young also played advisory roles on the mammoth demerger task.

In documents published today, BHP said those one-off costs would be paid back very quickly.

"We expect the value of the cost savings arising from portfolio simplification alone to more than offset the demerger's one-off transaction costs," the company said.

Beyond the demerger, BHP has today revealed a plan to cut its pre-tax cost base by a further $US100 million, with 90 per cent of the task to be complete by June 30, 2017. 

BHP Defends Iron Strategy as Good for Australia Amid Surplus

BHP Defends Iron Strategy as Good for Australia Amid Surplus


BHP Billiton Ltd., the world’s largest mining company, defended its strategy of boosting iron ore supplies at a time of falling prices, saying a focus on raising output and efficiency was aiding Australia’s competitiveness.

Production from its operations in Western Australia was a record 124 million metric tons in the first half, and may reach 245 million tons in the 2015 financial year, BHP said in a statement on Tuesday as Jimmy Wilson, head of its iron ore business, addressed a conference in Perth. The company is on track to achieve unit cash costs below $20 a ton, BHP said.

“With this strategy, we are maintaining Australia’s competitive position in the global market and providing the revenue, royalties, employment and innovation that is so important for this country’s future,” said Wilson.

Iron ore sank 47 percent in 2014 and extended losses this year as surging low-cost supplies from BHP, Rio Tinto Group and Fortescue Metals Group Ltd., Australia’s top producers, outpaced demand growth, spurring a surplus just as China slowed. The slump hurt government revenues in Australia, the world’s biggest shipper, while squeezing smaller producers. Iron ore may find a floor at about $50 a ton, Citigroup Inc. told the conference.

“We have no major projects in execution and our growth pathway will be achieved by continuing to make our existing infrastructure more productive,” said Wilson. BHP anticipated the increased supply of seaborne ore and approved the last of its major capital investments in the Pilbara in 2011, it said.

Lower Prices

Ore with 62 percent content at Qingdao fell 1.5 percent to $58.58 a dry ton on Monday, declining for a fifth day, according to data from Metal Bulletin Ltd. That’s the lowest price since at least May 2008, when Metal Bulletin started compiling weekly prices. The commodity is 18 percent lower this year.

“Is there any chance the major producers will reassess and downgrade their plans, given where the price is? We think not,” Laura Brooks, a senior consultant at CRU Group, told the conference. “One reason for this is that competitive pressure is driving producers to seek cost reductions, and volume is critical if unit costs are to be cut.”

Rio Chief Executive Officer Sam Walsh said last month that if his company reduced output, forfeited supply would be made up by higher-cost competitors, adding that producers made decisions independently. The London-based company, which mines in the ore-rich Pilbara region, is on track to deliver 330 million tons of output by 2015 and 350 million tons by 2017, Iron Ore Chief Executive Andrew Harding said at the at conference.

Rio’s View

“The broader Pilbara shows that from January 2011 to December 2014 inclusive, 248 million new tons entered the market from Rio Tinto, BHP Billiton and FMG,” Harding said. Of that increase, “Rio Tinto accounted for 63 million tons, or 25 percent. As you know, some would like you to believe that Rio Tinto has had the largest volume increase in that time. But as you can see, this is simply not the case.”

The global surplus will surge to 437 million tons in 2018 from 184 million tons this year, Morgan Stanley said on Feb. 22. Global seaborne supply is projected to increase 4.6 percent in 2015, topping the 3 percent growth in demand, according to the bank, which sees iron ore averaging $79 a ton this year.

There’s a floor for prices at about $50 a ton, Citigroup Iron Ore & Steel Head Mark Lyons said at the conference. At current prices, an estimated 38 percent of global output isn’t generating cash, according to CRU

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Metals Watch: Gold, Silver, Platinum, Palladium and Copper Gain

Metals Watch: Gold, Silver, Platinum, Palladium and Copper Gain

Gold and other metals prices settled higher overnight, getting a boost from the Chinese central bank’s decision to cut the reserve-requirement ratio for banks in an aim to boost growth.

Gold for April delivery added 0.3% to settle at US$1,264.50 an ounce.

March silver rose more than 0.4% to end at US$17.395 an ounce.

Elsewhere in metals trading, platinum for April delivery climbed 0.3% to settle at US$1,238.90 an ounce, while March palladium firmed 0.5% to end at US$790.20 an ounce.

High-grade copper for March delivery added a penny to US$2.59 a pound.

- See more at: http://investmentaustralia.blogspot.com.au/2015/02/metals-watch-gold-silver-platinum.html#sthash.JFSXgezy.dpuf

Atlas Iron shares Exploded Today

Shares in Australian resources company Atlas Iron soared today, trading up more than 20%.

The miner, whose share price has been hit by falling iron ore prices in recent months, was on a cracking run this afternoon hitting $0.203 a share a short time ago.


Assisting the rally was the higher iron ore price which was up 1.2% to $63.18 a tonne overnight.


This is the chart.



#Atlasiron #atlas #ironore #iron #FE #basemetals #metalsnews #galeforcesales #silver #pennystocks

Australian Dollar Tumbles on RBA Cash Rate Cut

The Australian dollar tumbled by more than one and a half cents on the Reserve Bank of Australia's decision to cut the cash rate to a historic new low.

The local currency hit a fresh five-and-a-half year low to US76.57¢ on Tuesday afternoon, down from US78.16¢ just before the release. The reaction followed the central bank's decision to cut the cash rate by 25 basis points to 2.25 per cent after 18 months of holding the rate steady.

Despite the sharp fall in the Aussie dollar – nearly 20 per cent in the past six months – the Reserve Bank said the exchange rate remained high. 

"The Australian dollar has declined noticeably against a rising US dollar over recent months, though less so against a basket of currencies," the Reserve Bank said in its statement on monetary policy.

"It remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy."

Market forecasts the exchange rate to continue to fall. On Commonwealth Bank of Australia figures, the local currency is expected to fall towards 73¢ by June this year, but the bank's senior currency strategist Elias Haddad said there was a risk the Australian dollar will fall even further and the bank will be revising its forecast.

"We expect a further downside movement here, not just against the US dollar but also on the crosses, due to narrowing interest rate, falling commodity prices and still unimpressive Chinese economic data," Mr Haddad said.

National Australia Bank will also be revising its forecast in light of Tuesday's tumble. Back in November last year the bank forecast the Australian dollar to hit US78¢ by the end of 2015. NAB global co-head of FX strategy Ray Attrill said the bank will be reviewing its forecast after the central bank releases its statement on monetary policy on Friday.

"The market already priced in the expectations of a rate cut, but the currency still lost. It shows the market is still prepared to sell," Mr Attrill said.

In an exclusive interview with The Australian Financial Review in December last year, Reserve Bank governor Glenn Stevens said an appropriate level for the Australian dollar would be US75¢.

Mr Attrill said the currency could be heading towards the US70¢ mark, given the fall in the commodity prices since December.

"You can argue, if US75¢ was about the right level in mid-December, and taking into account what's happened with commodity prices generally, maybe US70¢ is more appropriate," he said.

A batch of data fuelled RBA jitters earlier on Tuesday. The Australian dollar jumped by more than third of a cent to US78.30¢ after slightly better-than-expected economic data was released: building approvals slipped 3.3 per cent in December (better than the predictions of a 5 per cent slide) and trade deficit narrowed to $436 million in December, beating expectation of more than $850 million.

#AustralianDollar #RBA #interestrates

Iron Ore Won't Rebound Any Time Soon

Why Iron Ore Won't Rebound Any Time Soon

Economists may teach that low prices and declining demand encourage producers to decrease supply, but the iron ore industry appears to have skipped class that day.

"The combination of a further increase in global iron ore supply this year and only subdued demand growth suggests iron ore prices will continue to drift lower," said Caroline Bain, an analyst at Capital Economics, in a note Monday. She forecasts iron ore prices at $60 a tonne by year-end, with risks to the downside. Iron ore touched a more than five-year low Monday of around $63.30 a tonne, although some forward contracts are already pricing it under $60.

Output has picked up over the past few years, encouraged by expectations China demand would continue to post strong growth and by low production costs in Australia and Brazil, she said. She noted Rio Tinto and BHP Billiton put their average production cost in Pilbara, where most of Australia's iron-ore production is located, at around $25 a tonne, compared with 2010-13 average market prices at $145 a tonne. Even at current prices, these producers are still profitable, Bain noted. Australia is the world's second-largest iron-ore producer after China.

Despite 2014's around 50 percent decline in iron ore prices, the big four producers -- Vale (Sao Paulo Stock Exchange: VALE'A-BR), Rio Tinto, BHP Billiton and Fortescue (ASX:FMG-AU) - continue to expand production and other companies are also bringing projects on line this year, she said, forecasting Australian production will rise 6 percent this year, although that's down from 2014's 20 percent rise.

Don't count on China

At the same time, despite China producers' higher costs and lower ore grades, production there isn't likely to see much slowdown, especially as many steel plants have "vertically integrated" operations, owning mines nearby, Bain said. Closures on the mainland are likely to focus on less efficient operations, leading to a leaner and meaner industry there, she said.

"The multinational producers will be only partially successful in their bid to oust higher-cost producers globally and oversupply will continue to weigh on prices," she said. At the same time, China's iron ore usage will stagnate at best, hit by a combination of high inventories and lower demand to use the metal as part of financing deals, she said.

Goldman Sachs also expects iron ore producers won't be able to count on China for growth, noting it's become a mature market.

"The decade-long love affair between China and iron ore is cooling. Chinese steel consumption has increased to unsustainable levels and is bound to decline," it said in a note Friday. "Significant overinvestment to date will ensure that the market is well supplied."

It expects a "long war of attrition" will be needed to balance the market, cutting its long-term price forecast by 25 percent to $60 a tonne.

The Oil Effect

Falling oil prices are also set to weigh on iron ore prices, as they result in "substantial cost reductions", and commodity prices are likely to fall to meet these new lower levels, Citigroup said in a note Monday.

It's also concerned about oil-fueled deflationary pressures affecting commodity demand. 

"Falling prices increase the real cost of debt repayments and could see increased defaults. This not only affects direct commodity demand, but also drives lower inventories and threatens commodity financing trade," it said, noting that falling commodity prices also leave companies with little incentive to build up inventories.

In a note earlier this month, the bank cut its 2015 iron ore price forecast to $58 a tonne from $65

Interest in Oil (as indicated through search volume) is Abnormally High at the Moment Due to Recent Price Decline

Interest in Oil (as indicated through search volume) is Abnormally High at the Moment Due to Recent Price Decline.

Looking at the google trends chart above, we can see Interest in Oil (as indicated through search volume) is abnormally high at the moment.



 This data tells us more people are searching for oil using google, likely correlation to investment therefore we can assume that people are looking to invest in oil and are researching or looking to purchase shares and futures commodities contracts online.



 Last time oil price was this low four years ago, price quickly rebounded and went in access of $150 US per barrel.

Gold looks to feature more prominently also the last few months, the Swiss Gold Referendum, Swiss Depeg (de-ceiling) and repatriation of gold by European central banks lately have all been popular news story's on-line.



By Joseph Gale