We had two very different outlooks from companies at opposite ends of the current corporate ladder in Australia.
One the one hand we had the very profitable and successful BHP Billiton and its AGM for Australian shareholders where a more cautious resources giant was revealed than even a month ago.
At the other end we had struggling loss-making Goodman Fielder with a strategy update that was upbeat, more so than you would have thought a month or two ago.
Before the meeting BHP showed its strength by revealing that it had raised $US3 billion on global capital markets at a cost significantly lower than many countries pay, such as Italy and Spain.
And it revealed two decisions to invest well over $1.1 billion in new facilities in its WA iron ore business.
The BHP meeting was in Melbourne and shareholders heard that the company’s management has become more wary on the outlook for commodity markets, as the eurozone crisis intensifies, hitting banks and credit markets.
The company warned that some customers were starting to face tighter access to trade finance and some were cutting production.
For example, Chinese steel production in October was the lowest since February, despite a solid month of iron ore imports.
Steel producers in Japan and South Korea are also trimming output as is the world’s biggest steelmaker, ArecelorMittal.
"The heightened volatility and uncertain economic outlook are expected to continue to weigh on sentiment in the markets for our commodities," CEO, Marius Kloppers told shareholders.
The comments say BHP shares rise 47c to $37.12 after being weaker in early trading.
Mr Kloppers was more cautious than at the group’s UK shareholder meeting in London last month, where he said prices had softened in the face of global uncertainty.
He reiterated yesterday that customers had raised their cautious approach to managing their stocks.
"Despite these challenges, we continue to be able to sell all that we produce and our counterparties continue to perform to contracted volumes," Chief Executive Marius Kloppers told shareholders.
"We are also aware that for some of the people we do business with, there has been tightening in both the availability of trade finance and the terms on which it can be accessed," he said.
After delivering a record $US21.7 billion profit in the past financial year, investors have been wanting BHP to buy back more shares, following a $US10 billion share buyback completed earlier this year.
The company has said it would consider buybacks alongside potential acquisitions and its plans to spend $US80 billion in the five years to 2015 to expand iron ore, coal, copper, uranium and natural gas production.
BHP earned a record $US21.7 billion in the June 30 year and analysts have the company earning around $US23 billion or so in the 2012 year, but given the slump in copper, iron ore and coal prices in the past two months, that forecast could already be too high.
Underlining the fact that the more cautious view of the global economy was short-term, Mr Kloppers said BHP has not changed its longer term outlook.
He said the rapid industrialisation and urbanisation of the developing world is the beginning of a structural shift in the global economy that will last for many decades.
"Therefore, notwithstanding the current challenges for the global economy, we expect the influence of developing nations to become more pronounced as their economies contribute a greater proportion of global GDP,’’ he said.
"Against this backdrop, the future long-term demand for our products will remain strong.
And three separate announcements in the past couple of days underlined the company’s longer term outlook.
Yesterday BHP said it had raised a total of $US3 billion in new debt (to replace short term commercial paper), at rates ranging from 1.125% for $US1 billion of four year notes, up to $US1.25 billion of 10 year bonds with an interest rate of 3.250% (which makes BHP a better credit risk than many countries, especially Italy and Spain).
The company also revealed plans to spend more than half a billion dollars on a new power station at its Mount Newman iron ore mining complex in WA.
The Yarnima Power Station will start producing power in 2014 and will secure future power supply for its Western Australia iron ore mining operations in the Pilbara.
BHP Billiton will build, own, and operate the combined cycle gas turbine (CCGT) power station, to be located in Newman, which will deliver 190 megawatts to replace supply from the existing Newman Power Station. The capital cost of the project is expected to be US$597 million (BHP Billiton share US$507 million).
And still in the iron ore province, the company has also approved a $US698 million ($A688 million) investment to develop its Orebody 24 iron ore mine near Newman in Western Australia.
"Orebody 24 is a small satellite mine to the massive Mt Whaleback operation, which was established in 1968 and is the biggest single-pit open-cut iron ore mine in the world at more than 5km long and nearly 1.5 kilometre wide. It will have the capacity to produce 17 million tonnes of iron ore a year and is due to start producing in a year’s time.
The joint venture partners are Itochu Minerals & Energy, Mitsui-Itochu Iron and Mitsui Iron Ore. The full development cost is $US822 million, with BHP Billiton’s share being $US698 million.
