Zacks_Analysts' Blog : BHP to Invest Over a Billion - Analyst Blog

Australian mining giant, BHP Billiton Ltd. (BHP) recently approved the development of the Macedon gas field in Western Australia in a joint venture with Apache Corporation (APA). BHP Billiton has decided to invest $1.05 billion with a 71.43% share and the balance 28.57% will be contributed by Apache with $450 million.

 

The Macedon project, under BHP’s control, with a capacity of 200 million standard cubic feet per day will have four offshore production wells to supply wet gas pipeline to an onshore gas treatment plant.

 

BHP Billiton has been making quite a few investments in Western Australia. The most important among them was the joint venture with Rio Tinto (RTP) in 2009 to establish an iron ore production plant in the area. BHP Billiton is in process to progress the same.

 

BHP Billiton is committed to its long-term growth objective through its key investment strategy. During fiscal 2010, BHP delivered five growth projects and approved two major growth projects with a total outlay of $695 million and made pre-commitments totaling $2,237 million to start work on four other projects.

 

The company, at present has 20 projects in hand requiring an investment of $25 billion. Moreover, the recent takeover offer of BHP Billiton for Canada's Potash Corp. of Saskatchewan Inc. (POT), the world's biggest fertilizer manufacturer, for $38.56 billion or $130 per share is also expected to materialize soon. The acquisition would definitely bear fruit. Hence, the stock currently retains its short term “Buy" rating with a Zacks #2 rank.

 

Further, the gradual improvement in market demand and a progressive dividend policy with fiscal 2010 dividend of 87 cents per share, up from 82 cents per share in fiscal 2009 inspires our optimism about the stock.

 

However, extremely cyclical nature of its products, a highly competitive industry, and a slower market recovery are matters of concern. Thus, over the longer term, we reiterate our Neutral recommendation on the ADR.