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The share price of BHP Billiton (LSE:BLT) reached its highest peak since 19 February 2013, closing at 2,066, up 0.58% on the day after having reached 2,084 early this morning after the markets opened. A remarkably exceptional annual production report help to boost the BHP share price. When we are talking about a 0.58% increase in value for a company whose market cap is already greater than £43.6 billion, that 0.58& represents a bit more than pocket change.
BHP ended its fiscal year, which not only beat expectations on the street, but exceed two upwardly adjusted forecasts during the year by the company itself. In terms of production alone, the 9% increase in output was the 14th consecutive annual production increase for the mega-company, firmly holding on to its place as the largest mining company in the world. The fourth quarter was especially good for BHP as it beat 4Q 2013 by 19%, to help bring in 225 million tonnes for the year. Expectations are currently 245 million for FY 2015.
CEO Andrew Mackenzie cited “Our focus on productivity [resulting] in a significant operating performance.” He said that, “We expect to maintain strong momentum.”
Just as with all mining companies, BHP has had to deal with declining ore prices, but, because of its operating efficiency, it has been able to bear up better than others under the financial crunch. Iron ore prices have dropped from $110 USD per wet metric tonne in 2013 to $96 per in the last six months. The only way to compete successfully and profitably in a market where prices are being squeezed is by reducing costs and increasing efficiency. Billiton has been following a well-conceived strategic plan that aggressively addresses both issues.
It doesn’t take a rocket scientist to figure out that you can still generate increased revenues in a declining market by increasing output. But, if you are already losing money, increasing output only makes matters worse. Mackenzie and his board have got the right plan. He said, “We will remain focused on value over volume as we prioritize our brownfield development options and consider the next phase of portfolio simplification.” BHP has divested some $6.7 billion in assets during 2013 and 2014 that were considered redundant, unproductive or no longer necessary.
While many mining companies are scrambling to survive in the difficult times, we are about to witness the survival of the fittest. BHP will be one of the survivors. One analyst expressed the opinion that, “This is already having an impact on the high-cost producers. In our view, BHP’s growth plans have the effect of consolidating and gaining market share in an adequately supplied market, at the expense of the less efficient producers.”
