October 8, 2010

Dear Friend,

The A$ appreciation to US $0.983 increases BHP Billiton's cost structure, and we are concerned the A$ may continue strengthening towards $1.10 owing to the Australian continent's wonderful resource endowment and current U.S. policies.  Further, BHP Billiton's near-term performance has "bumps" from US offshore drilling issues, dropoffs from the recent 1.4% grade at Escondida, other currencies appreciating, labor, etc.

 

Longer term, the Australian tax issues are not final, China's new five year plan January 1st could enforce more energy conservation limits, cap ex priorities could change after the Potash deal, the financial structure of BHP Billiton could change and the exact deal terms are not yet known.  There are many "open items" in our financial models awaiting clarity.

 

BHP Billiton seemed like a fine candidate for profit-taking among our coverage universe.

 

Faithfully,

 

John C. Tumazos, CFA