RISK ANALYSIS

Risk Analysis



Risk Analysis

BHP Billiton

BHP Billiton is an Anglo-Australian company with over a hundred operations in 25 countries and a presence on every continent. The company, which changed its name to BHP Billiton, is now the world's biggest miner. Although few consumers recognize the name BHP Billiton, its products, including aluminium, iron ore and copper are used in products ranging from cars to microwaves. Industrialization China bodes even better times, as its 1300 million people demanding more roads, apartments and technology equipment.

But BHP Billiton recovery reflects a broader change in the mining sector, which for years struggled to stay afloat after decades of decline in prices of basic goods. In past booms, miners rushed to dig prices barely changed, even if this led to an oversupply. This time, they are trying maintaining the rise. If successful, the prices of some key industrial commodities may remain elevated for longer, with important implications for the global economy.

The current bull cycle has been extended more than any other commodity boom over the past 50 years. Like Big Oil, BHP Billiton and other mining companies are spending large portions of their earnings to repurchase shares or acquisitions, which pleases investors but not necessarily adding to global supplies raw materials.

Companies are also using tools more sophisticated risk analysis to understand trends in supply and demand. This discourages more speculative project approval. In many cases, mining companies are run by bankers and financial executives in the world who fear excessive risk, rather than adventurous entrepreneurs and engineers that derailed during previous booms. "Engineers like to build things, that's what they do," says the chief executive of BHP Billiton, Charles "Chip" Goodyear, an American who started as a banker at Kidder Peabody. "My job is to make money," he says, and sometimes this means setting aside initiatives promising but involves great risks.

BHP Billiton has two dozen projects in various stages of development in the world, at a projected cost of over U.S. $ 10,000 million. But much of the spending is concentrated in a handful of oil and gas projects. Some of the major copper mines, iron ore and others have trouble meeting demand. Meanwhile, BHP announced plans to repay $ 2 billion to shareholders through share repurchases. It also raised its dividend by 30%.

In part, the industry caution born of necessity. The shortage of manpower and equipment hinders the development of new projects. But the miners do not forget how bad it was about in the industry a few years ago.

BHP Billiton goes back to the 1880s, when an employee of a farm tin found in an area called broken hill, south of Australia. The discovery gave birth to Broken Hill Proprietary, or BHP, which extracted silver, lead and zinc. The company then diversified into iron ore and steel and expanded abroad. As he grew older, BHP took more risks. The company became famous for defending projects its engineer's enthusiastic but not always made sense from a technical or ...