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April 30, 2010 Dear Friend,
BHP Billiton benefits
greatly from the pricrises in iron ore, met coal, various
traded commodities futures and other minerals. Iron ore and
met coal quarterly price resets offer more near-term
upsides. Its volumes are rising cyclically as well. We
raised our earnings estimates for 2010 to 2016 by $1.71 to
$1.96 per ADS per year.
While we raised our
earnings estimates almost 40%, prospective capital spending
appears to be twice as much as we estimated six months ago.
Further, large outlays at Escondida, Olympic Dam and other
projects could increase capital outlays more. The strong A$
and energy cost rebounds have increased costs. Energy coal
is the only business unit whose earnings are not above our
prior expectations. Thus, we increased our price target
just 13% with the large commodity price surges.
Notwithstanding, BHP
Billiton's shares offer two-thirds share price appreciation
potential from current levels plus dividends. It is
noteworthy that BHP Billiton did not participate in the
final eight months of the 2008 commodities boom, as its
shares fell after its November 2007 run at Rio Tinto. BHP
Billiton also has not made a major acquisition since Spring
2005, preserving its balance sheet and prospective
flexibility to increase dividends or buy back stock.
Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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