BHP - Astonishing result

[BlackCross]

Merrill put out a note yesterday arguing that both BHP and Rio should be capital raising “to be ready to acquire distressed Tier 1 assets”

Discussions with investors suggest that there may be a limited pool of equity available for recapitalizations. If “blue chips” move early, it might make it more difficult for other lower quality more leveraged companies to access equity markets. [...] we believe that early recappers could be rewarded with mandates to consolidate. More marginal leveraged players may be left with no choice but distressed asset sales. Management change might also be required to effect recaps....


Both BHP & Rio Tinto do presently have “progressive” dividend policies i.e. dividends flat or up. This is an onerous call on the cashflow of the companies, for example for BHP dividends cost some US$6.6 bn/yr. Based on comments from BHP’s chairman, we have formally cut our FY2016E dividend forecast by 50% to US$0.62/sh, cutting the annual dividend cost to US$3.3 bn. For Rio Tinto, the current dividend cost is about US$3.9 bn/yr. For now, we assume Rio’s dividend is not cut although we don’t rule it out for the future. Of course, shoring up balance sheets needn’t be an either / or choice. We that a combination of dividend cut and equity raise could get companies ready for M&A.

[macduffy]

I wouldn't place too much reliance on "progressive" dividend policies surviving current low metal prices but both BHP and RIO will interest me when prices bottom out and their shareprices start to trend upwards.

[macduffy]

Goldman Sachs reckon Aussie miners are still overpriced.

http://www.smh.com.au/business/marke...19-gm8tab.html

Anyone think otherwise?

[Daytr]

I think it depends on their costs and that their costs including debt have remained in Aussie dollars.
So many of the banks were recommending USD denominated debt and many got sucked in and are paying for it now.

[BlackPeter]

Goldman Sachs reckon Aussie miners are still overpriced.

http://www.smh.com.au/business/marke...19-gm8tab.html

Anyone think otherwise?

Haven't looked at this one (BHP) for some time now .. but the trend chart looks shocking ... falling knife springing to mind. So yes, Goldman might be still right (until the trend changes, of course).

[macduffy]

Haven't looked at this one (BHP) for some time now .. but the trend chart looks shocking ... falling knife springing to mind. So yes, Goldman might be still right (until the trend changes, of course).

That's pretty much my thoughts, too, Peter. BHP has been a great medium term investment for me -several times - in the past 40 odd years. Looking forward to another opportunity when the dust settles!

[Beagle]

Haven't looked at this one (BHP) for some time now .. but the trend chart looks shocking ... falling knife springing to mind. So yes, Goldman might be still right (until the trend changes, of course).

That's pretty much my thoughts, too, Peter. BHP has been a great medium term investment for me -several times - in the past 40 odd years. Looking forward to another opportunity when the dust settles!

I'm with you guys on this one. Waiting until a new uptrend is confirmed. I think if BHP are smart they'll be able to pick up some incredibly cheap assets from the junior miners in the next few years.

[trader_jackson]

I would be careful with BHP (or Rio)... I know yesterday Ord Minnett slashed its 12 month target from $18 to $13, with a lighten recommendation. Balance sheet is OK, but except the dividend to be dramatically cut (Ord Minnett expecting it to be halved)

In my view, it is all about the cash flows for many of these mining companies right now, from Bathurst to BHP. As BHP is expected to be free cash flow positive, I think long term should be ok, but tread with alot of care.

Disclosure: Not holding (but a year ago almost exactly thought it was 'good' at $29, lucky I didn't buy!)

[macduffy]

I'm with you guys on this one. Waiting until a new uptrend is confirmed. I think if BHP are smart they'll be able to pick up some incredibly cheap assets from the junior miners in the next few years.

Yes, one would think so. But BHP tend to favour mega projects - some of which have come badly unstuck over the years! - so I wonder if any of the juniors will have much to interest them.

[Daytr]

These guys that defend dividends at all costs are reckless at best and are risking shareholder money and in some cases the very viability off the company.
How many times have you seen dividends paid only to see a CR months later at a much lower SP for instance.
Share buybacks the same. In the US how much stock was bought back at the top of the market?