BHP Billiton FY 2Q16 Earnings Call Notes

posted in: Notes | 0

Andrew Mackenzie

China’s transition from an investment heavy to services economy has been faster than anticipated

” China’s economic growth is slowing as it matures. And although, its headline GDP growth is consistent with our expectations, its composition has changed more quickly than most anticipated. We see signs of a faster transition from an investment and heavy industry-wide economy to one led by services. And the strength of the service sector creates employment, which allows acceleration of important structural reforms including the State-Owned Enterprises. But in the near-term, as industrial over capacity is reduced, this will further constraint demand for commodities and these near-term changes have been amplified by disruption to the oil markets and broader global uncertainty.”

We see significant upside especially in oil and copper

“the bottom chart here illustrates the significant upside, we see particularly in oil and copper longer term. Because although these markets are currently well supplied, we expect demand to continue to grow, while well decline in oil and grade reductions in copper erode supply.”

An environment where buy is better than build

“this is an environment where in many respects buy rather than build is more attractive and I think doubley [ph] so, one because buy is potentially cheap and Peter referred to that a little bit and saying it’s not quite a war chest, but who knows what might come under distress in this sort of environment. ”

Long term price assumptions haven’t changed much

“We update our price estimates every year. And sometimes, when we feel things have moved. We might do a little bit more frequently, as we did recently to look at the valuation of our petroleum business. But I would say that, our long-term prices haven’t changed much, with the exception of oil. And I talked about that earlier. Just trying to understand the transition period, that is more difficult.”

As we get out a year or two we start to see markets coming back

“What I’m trying to say, we as a company I think are reasonably sure that we’re in a for period of sustained lower prices with volatility. Potentially for some years and we have built the company that’s able to handle that. but as we go through some of our commodities and we’ll see how that turns out, we do as we get out of year or two, start to see markets coming back into balance domestic gas then oil, then copper and longer term, potentially potash.”