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Members of the Brisbane (Australia) Mining Club listened attentively today as Marius Kloppers, CEO of BHP Billiton (LSE:BLT) reported record production numbers for his company, but warned that the record commodity prices the industry has enjoyed for the last 10 years are about to return to long-term levels. The mining industry has enjoyed the benefit of a strong demand for a limited supply of mined resources, due in large part to the “shock demand” generated by the expansion of the Chinese infrastructure during the last decade.
If he is correct in his forward-looking assessment, the prediction may not bode well for smaller, more narrowly focused mining companies, especially the johnny-come-lately’s who have cast their lots into one asset hoping to take advantage of what was in high demand but is now fading away. We can be certain that industry giants like BHP will not been keen to lose any business with any customer to a new kid on the block. BHP has the flexibility to withstand almost any market change that smaller competitors cannot. What we may see over the next decade is a period of M&A’s as the BHPs of the world gobble up efficiently run, resource rich youngsters. Those upstarts whose speculative ventures are falling short of fulfillment may simply close their doors. In short, the small companies are going to need the two critical “C”s — Capacity and Customers in order to survive.
As for BHP, it says it “remains committed to its proven strategy which is to invest in large, long life, low cost, expandable, upstream assets, diversified by commodity, geography and market, throughout the economic cycle.” The group has 19 high quality, low risk, largely brownfield projects currently in execution that are expected to “deliver strong financial returns for our shareholders.” The company does not intend to increase capital expenditures without clear, significant evidence that demands will rise again and that the sites targeted for the cap ex are proven to have potential for high volume and long life.
The BHP share price has enjoyed an impressive day on the London Stock Exchange today, opening at 1949.00, breaching 2,000.00 just before noon, before settling in at 1995.00 just prior to 14:00 UTC. The 46.00 pence increase is probably largely due to the official release this morning of the company’s Production Report for the quarter ending 30 September 2012 and its Exploration and Development Report for the same period.
Total production of petroleum products averaged 666,000 boepd for a total of 61.25 million boe, a record for BHP. Copper production is on track to reach a 20% increase for the full year. Although diamond production was down year on year, nickel, iron ore, and manganese contributed with modest increases in production.
With a current market cap of £42,135.83, the world’s largest mining company appears to be well positioned to respond in a timely manner to any changes — or lack of changes — in market conditions or demands. Its stock has been trading well above its 90-day average for the last 40 days.
