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Posts Tagged ‘Debt to Equity’

BHP results underline financial strength

August 25, 2010 2 comments

“BHP Billiton, the Anglo-Australian miner that last week launched a $39bn hostile bid for Canada’s PotashCorp, has reported its second best full-year net profit on record fuelled by strong growth in earnings from its petroleum and base metals operations.

The Melbourne-based miner, the world’s biggest, underlined its financial clout when it said on Wednesday that it generated $17.9bn in cash flow from its operations, with net debt falling to $3.3bn and a gearing ratio of 6 per cent.

Profits on a pre-tax basis rose from $11.6bn to $19.6bn in the year ended June on revenues that increased from $50.2bn to $52.8bn. After-tax profits grew from $5.9bn to $12.7bn, falling short of forecasts of around $13.3bn.”

Source: Financial Times, August 24, 2010

Observations:

  • BHP has managed to increase output by $2.9bln while improving operating performance by $0.3bln. The improvement vs. 2009 is mainly explained by higher copper, base metals & petroleum margins. Revenues and profits do not yet come close to pre-downturn levels, mainly because of lower iron ore prices in the second half of 2009.
  • The published project pipeline shows that the Navajo St. Energy Coal project has been dropped in the feasibility stage in the past year.

Implications:

  • Main take-away from the executives’ Outlook presentation is the expected slowing of government-driven growth in China and Europe. The board appears to be trying to lower expectations for next year’s results.
  • The net gearing of the company of 6% is stressed to demonstrate the ability to increase debt in order to purchase PotashCorp. This figure is the most positive leverage-related ratio from the balance sheet. The regular debt-to-equity ratio (debt/equity) is 80% and will exceed 100% after the acquisition.

©2010 | Wilfred Visser | thebusinessofmining.com

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Vale acquires Simandou iron ore assets

May 1, 2010 Comments off

“Vale announces it has acquired from BSG Resources Ltd. (BSGR), a 51% interest on BSG Resources (Guinea) Ltd., which indirectly holds iron ore concession rights in Guinea, in Simandou South (Zogota), and iron ore exploration permits in Simandou North and Blocks 1 & 2. In an all-cash transaction, Vale will pay US$ 2.5 billion, of which US$ 500 million is payable immediately and the remaining US$ 2.0 billion on a phased basis upon achievement of specific milestones.”

Source: Vale press release, April 30 2010

Observations:

  • Vale completes a $2.5bn cash transaction, continuing the trend to grow through small acquisitions that are easily integrated in the company.
  • The Debt to Equity ratio after this transition still is the most favorable of the giant players at approx. 0.83 (vs. 0.86 for BHP Billiton, 1.16 for Anglo American and 1.22 for Rio Tinto).
  • Cash available is reduced significantly (although $2.0bn of the deal is not to be paid immediately).

Implications:

  • Vale continues to grow by small acquisitions and to enlarge its take of the global iron ore market. It could be a matter of time before the companies takes the number 1 position in global mining revenues.
  • Vale seems not to be hoarding cash for a potential Rio Tinto acquisition, while BHP might reconsider buying Rio Tinto in case the Australian competition regulator decides against the proposed Pilbara joint venture.