BHP Billiton: Hole in the ground

Steve Johnson

Production volumes are up massively. Revenues have doubled, despite the massive pullback since 2011. By almost any measure, BHP is a bigger company than it was in 2004. China clearly happened. But in terms of shareholder wealth, the one that matters, it’s all been for nought, or close enough. BHP's share price is back at 2004 levels. Chinese demand didn’t create untold wealth (in the long run), but rather induced investment by the majors to the point of malinvestment. It’s a cycle that has repeated endlessly over the eons. That’s why the major task for successful investors is to make the distinction between high quality businesses—those with pricing power and a moat—from run of the mill commodity price-takers. In the short term, they can be easy to confuse. But long term, only the high quality businesses can turn an economic tailwind into outstanding shareholder returns. (VIEW LINK)


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Steve Johnson

I still think it's a an interesting space at the moment. We're on the record as recent purchasers of S32 and are taking a good look a Whitehaven. Even if they are good investments from here, though, it won't change the fact that billions of dollars worth of shareholder wealth have been invested in projects that are never going to earn an economic return.

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Claude Walker

I agree that these companies have unattractive business models and a poor record of capital allocation.

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