Tag Archives: BHP Billiton share price

BHP investors: hold on to your seatbelts, you’re in for a bumpy ride

This week, Mike van Dulken and Augustin Eden from Accendo Markets warn that BHP Billiton investors should brace themselves for legal action of BP proportions…

BHP Billiton (BLT) is this week underperforming a similarly weak commodity sector, one which is already under the cosh from a US dollar rebound, an oil price turning over from its highs and persistent global growth concerns after the latest China data sapping investor sentiment. The reason Billiton’s faring worse than its peers stems from news of a $44bn civil legal challenge from Brazilian federal prosecutors related to last November’s Samarco dam failure. That in itself may appear to be a minor driver. It’ll be sorted out soon, won’t it?

Er, well, something similar happened to BP about six years ago and this has quite rightly spooked investors, who would now appear to be pricing in the prospect of long and protracted litigation akin to that which BP only put to bed in July last year – a whole five years and $53.8bn after its 2010 Deepwater Horizon Gulf of Mexico disaster!

The claim against BHP Billiton relates to clean-up costs for waterways and villages, community rebuilding and compensation for the deaths of 19 people and resulting homelessness inflicted on a further 700. Sound familiar?

While BP worked tirelessly to limit the impact (both environmental and financial) of its disaster, several attempts to close the affair failed, and now a fresh legal challenge for BHP Billiton sees its situation echoing that endured by BP. The March 2016 settlement between BHP Billiton, its domestic partner Vale and the Brazilian government was potentially just the beginning of a long road. While there remains the possibility that such an imposing precedent as BP’s Gulf of Mexico disaster is inflating the claim against BHP, one can’t help but see investors take flight at the prospect of added risk in an already risky sector.

Sure, the Brazilian government has form for demanding initially huge reparations for environmental disasters before conveniently reducing them, and a smaller settlement may well be agreed for BHP and its Samarco colleagues. But there is no guarantee of this. Then again, this is Brazil, where the president faces impeachment and replacement by any one of a number of equally dubious cronies.

BHP shares are still holding their uptrend from 2016 lows. Just. However, after giving up 50 per cent of their 2016 gains (now up just 40 per cent YTD vs highs of 80 per cent on 21 April), we have to wonder whether an already difficult situation could get even messier.

This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

Rio and BHP’s share price rally show the mining recovery is in full swing

This week, Mike van Dulken and Augustin Eden from Accendo Markets explain why bad news can be good news when it comes to mining…

Logistical problems (weather, transport) would normally be considered a negative for a dual-listed mining giant such as BHP Billiton (BLT) or Rio Tinto (RIO). However, trouble getting stuff like the iron ore required to make steel to market in the first quarter of the year has actually proved perversely beneficial to the recovering mining pair.

The news may have impacted recent quarterly financials and resulted in cuts to full-year production guidance, however, prices of the raw material have been buoyed by the interpretation of restricted product supply helping with a slowly reversing global glut. Rather than hurt the companies’ shares, they have maintained their recovery trajectories, even accelerating to make bullish breakouts to levels last seen in October/November. This may serve to attract even more interest, which could prolong the trend.

If I were to tell you that BLT has rallied over 70 per cent from its January lows and RIO by more than 55 per cent, these are exciting moves within the space of three months. Annualise that! Note that their peer Anglo American (AAL) is up 250 per cent from its lows. This is not a typo. It is trading at 780p vs Jan lows of 225p.

No surprise then that commodity prices are well off their lows too, and while the circa 50 per cent oil price recovery has been well documented, and given a depressed commodity sector a boost, it’s the 10-60 per cent rebounds in metals prices (aluminium, copper, nickel, zinc) that have really helped, and iron ore in particular (the winner, up 60 per cent).

This stems from a host of drivers. Tough decisions by the miners included reducing output by abandoning no longer viable projects to stem the supply glut. They have also cut costs and dividends to save money.

A weaker US dollar based on a more gentle normalisation of US monetary policy is also helping by making dollar-denominated commodities that bit cheaper. Short-covering of bearish bets will have added handsomely to early 2016 recovery momentum.

Furthermore, a slower growing China has become more acceptable to the investing masses, the belief being that it is no longer set for a hard landing (the government and central bank will intervene do whatever’s necessary). With China and the rest of the world still requiring mountains of commodities like iron ore for future growth, the outlook is not as bad as it was.

While corporates remain cautious, markets are cautiously optimistic. After the great sell-off we look to be in the midst of a great recovery. The big question now is how far it will run?

This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.