BHP Billiton (BHP) is still a strong believer in the China growth story (they have to be because they have so much at stake) judging by the message from this year’s shareholder meetings in London and Australia, and by comments from CEO Andrew Mackenzie who seems to be straight out of the optimist mould carved by his predecessor Marius Kloppers.
Mr Mackenzie repeated his bullish assessment at the London meeting in Melbourne earlier this week at the opening of the mining giant’s new global HQ.
In Perth yesterday at the Australian AGM he and chairman Jac Nasser were again upbeat.
For example, Mr Nasser reckons that China’s growth is resilient enough to help drive strong demand for commodities for the next 15 years (to around 2030).
"China and other emerging economies will be the major drivers of global economic growth in the long term, which could deliver up to a 75 per cent increase in demand for some commodities over the next 15 years."
"Only a few countries in the world are well placed to supply this increased demand for commodities, and Australia is one of them."
‘‘Therefore, we believe your company remains well positioned to contribute to the prosperity of the regions where we operate, including Australia.’’
"With employment conditions and income growth remaining resilient, we believe the Chinese government has the room and flexibility to pursue reforms that support its policy of stable, long term growth."
"We expect the Chinese economy to grow at over 7% next year," he told the meeting.
The Chinese economy will grow at around a 7.6 – 7.8% this year, with inflation under control, exports and imports solid.
In fact data out yesterday showed China’s huge manufacturing sector continued to grow this month.
The so-called ‘flash‘ results from the monthly survey by HSBC/Markit showed a small slowing in the pace of expansion to 50.4 from 50.9, with export orders weakening.
The news helped push the value of the Aussie dollar under 93 USc, before it recovered.
BHP YTD – BHP confident on China outlook and production for the next two years
BHP made a profit of $US10.9 billion in the 2012-13 financial year, down 30% from the previous year because of lower commodity prices, especially for coking and thermal coal.
The company’s production in the first quarter of the 2013-14 financial year was higher than analysts had expected, led by its WA iron ore mining operations and its copper mining business in Chile (the 57.5% owned Escondida).
Mr Mackenzie is confident that the company can continue to expand output, as he told the AGM production would increase by 8% in the coming two years.
He said that would happen by increasing productivity at existing mines and plants.
‘‘We are increasing our focus on our four pillars – iron ore, petroleum, copper, and coal, and and we continue to operate our aluminium, manganese and nickel businesses as efficiently as possible,’’ he said.
According to media reports, climate issues dominate much of the BHP meeting with shareholders firing a number of questions at the chairman and at Mr MacKenzie.
In one reply, Mr Mackenzie revealed he is in talks with the Abbott government over carbon policy, and declared that its "direct action" policy will protect trade exposed industries (such as those run by BHP and other exporters).
The Abbott government is going to repeal Labor’s carbon tax during its present term and Mr Mackenzie told the BHP annual meeting of shareholders that his talks with the government had been "constructive".
"We are looking very keenly with them as to what we can do with their direct action measure that will, I think, protect the competitiveness of trade-exposed industries across Australia, not just ours, and really understand how we can drive emissions reductions," he said.
"So far I am finding these discussions (with the government) very constructive and we have a number of ideas."
Mr Mackenzie’s predecessor, Marius Kloppers, was outspoken in calling for a price on carbon in 2010.
But BHP ended up unhappy with the carbon tax policy that Labor and the Greens eventually produced, on the grounds that it hurt Australian businesses against international competitors who were not exposed to any price on carbon.
Mr Mackenzie said he did not see the point in taking action on carbon emissions without a global approach.
"These are reductions that are going to be replicated across the world, there is no point in giving up CO2 in Australia only to find that Co2 is going to be emitted less efficiently elsewhere,” he said yesterday at the meeting in Perth.
Interestingly, Mr Mackenzie indicated in his speech that BHP would continue investing in potash, even though it only sees growth of 2% to 3% a year until 2030.
But he said this growth was being driven by higher demand for food. And he said that BHP’s average spend of $US800 million a year would put the company in a good position to exploit this steady growth in the future.
He confirmed the company was looking at further cuts to capital spending in 2015 after cutting 2014 capex by 25% to $US16 billion.
Of interest to shareholders and analysts is the forthcoming review of the company’s oil and gas division.
The results of that review are due next month at this stage and will outline (hopefully) BHP’s future ideas on how to continue growing this business and where.
In recent years BHP has moved deeper into LNG off the WA coast and into the US tight oil and gas plays with the purchases worth $US20 billion, with most of that for the Petrohawk purchase.
But it has already moved to maximise the output of higher priced and more profitable oil and gaseous liquids and cut back on gas production.
But the lack of any mention by Mr Mackenzie of the petroleum business and the review in his speech raised some eyebrows among analysts.
In fact potash had a bigger mention than petroleum which, given the billions of dollars in revenues and profits and the questions about the worth of some of the US investments, is disappointing.
And finally, an interesting stat from Mr Mackenzie’s speech is that Australians own the largest bit of BHP – around $US20 billion of shares, held by an estimated 7.5 million people, either directly or through superannuation.
BHP shares closed up a cent at $37.56.
