A terrific two year rise with more to come.

The Investment Column: Plenty more value still to be mined from BHP Billiton

Edited by Stephen Foley
Published: 21 October 2005
Another good year for Chip.

The chief executive of BHP Billiton was able to bask in praise at the natural resources giant's annual shareholder meeting yesterday. Another record year for sales, for profits and for dividends. And for the share price, too, which reflects optimism that we are still early on in a super-cycle of booming commodities prices.

Anglo-Australian BHP Billiton is uniquely well placed to benefit, since it has operations across one of the broadest spreads of commodities and across the globe. Unlike the other miners listed in London, it also has big oil and gas wells, so has enjoyed the benefits of the soaring oil price too.

The past few weeks have witnessed another of the occasional wobbles that send mining shares sharply lower, but it is difficult to believe that metals and energy prices are at their peak. Global demand remains very strong, with significant supply shortages in many base metals in particular. As well as demand from emerging China, India and Russia, the US continues to grow and Japan and Latin American countries are beginning to exceed growth forecasts.

The big picture, painted again yesterday by Mr Goodyear and the rest of the board, is of emerging economies sucking in more commodities to support industrialisation, upgrades to infrastructure and, increasingly, domestic consumption. Additionally, the energy needs of these countries will also be increasing, probably ahead of population growth. China is suffering problematic power shortages. BHP Billiton's oil, gas and coal interests will benefit over the medium term. Over the long term, it is likely that a nuclear renaissance will justify its decision to invest in uranium production.

Costs are rising across the mining industry as companies scramble to bring more projects on stream, but good profit growth can continue even if margins get compressed. With cash coming out its ears, allowing massive investment, share buy-backs and, hopefully, a more generous dividend in future (the yield is 2 per cent now), the shares are a buy.