Two heads (or headquarters) are better than one. Aussie minerals and oil company BHP Limited acquired UK miner Billiton plc in 2001. The result: a two-headquartered, dual-listed company run as a single entity with the same board of directors and management. The Melbourne side is BHP Billiton Limited, the London side is BHP Billiton Plc; collectively they are known as BHP Billiton. One of the largest diversified natural resources companies, it ranks among the world's top producers of iron ore and coal (thermal and metallurgical). Other products include aluminum, copper, manganese, nickel, silver, uranium, and potash. BHP also has crude oil and natural gas holdings. The company may spin off its diamond assets.
The company has far-flung operations. In Canada's Saskatchewan province, BHP produces potash, a primary raw material used to manufacture fertilizers and a top priority for the global titans of mining. In Australia it operates a coal-producing joint venture with Mitsubishi that has mining projects in Australia. Its Australian minerals businesses include not only iron ore, coal, and potash, but also copper and uranium. Its Chilean operations include a 58% stake in the Escondida mine, one of the world's largest and lowest-cost copper producers. BHP's oil and gas operations are worldwide, ranging from its Shenzi deepwater oil and gas field in the Gulf of Mexico to onshore natural gas production in Pakistan.
As a result of global demand for its resources, BHP Billiton turned in a good performance for 2011. Strong demand from China and other developing countries helped contribute to BHP's sharp increase in revenue that year. The company recorded net sales of $71.7 billion (up 36% from 2010) and a net income of $23.7 billion (up 86%). It also achieved record production for most of its commodities, including its 11th consecutive record in iron ore.
The company has created a diversified portfolio of tier one natural resources by investing in large, high-quality, low-cost assets. In addition to strategic acquisitions, BHP seeks organic growth through investments in major projects for its segments. In 2011 it poured about $13 billion in 11 projects to help grow several of its businesses: natural gas, iron ore, coal, copper, and diamonds. The company expected its organic growth program to exceed more than $80 billion in new development spending by 2015.
With mineral prices falling rapidly in 2012, however, the company may not meet its $80 billion spending target for investments and is reviewing its expansion plans. The price of iron ore, for example, has declined 29% since the company announced its plans for investments in early 2011.
Recent investments in on-shore shale assets in the US are also cause for concern. In 2011 BHP acquired Chesapeake Energy Corp.'s Fayetteville shale gas holdings in Arkansas for $4.75 billion. That year it also acquired Petrohawk Energy, another US-based gas producer with projects in the Eagle Ford and Haynesville shale plays, for $15.1 billion. In 2012, natural gas prices began to plummet. Although the company defended the long-term growth outlook for the shale assets, it did not rule out a possible writedown later that year for those investments.
Following the Petrohawk announcement in 2011, BHP acquired three subsidiaries of HWE Mining, a company owned by Leighton Holdings, for $735 million. The HWE Mining subsidiaries provide contract iron ore mining services in Western Australia to BHP, and the acquisition allows the company to both own and operate the mines.
BHP may also exit the diamonds business entirely. In 2012 it sold its 51% stake in the Chidliak diamond exploration project in Canada's Baffin Island to the project operator, Peregrine Diamonds, giving it full ownership. The sale follows BHP's review of its diamond businesses to determine whether they fit in its strategy. The company also owns an 80% stake in Canada's EKATI diamond mine, which is still under review. The company could receive less than $500 million for the sale of the mine. – less
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