BHP Billiton

A pullback in the share price, combined with an improved outlook on our assessment of the company’s fundamentals, allowed us to build a position in BHP Billiton. The company has recently gone to great lengths to demonstrate the value of its internal growth options over the coming decade. A previous concern of ours was that a lack of internal opportunity led to volume decline and the potential for large scale M&A to offset this. The business is in the process of completing a sensible acquisition of Oz Minerals which is complimentary to their existing Olympic Dam asset and will increase its copper optionality in the long term. While the risk of larger and less sensible M&A remains, we do feel it has been reduced by the internal focus and purchase of Oz Minerals. BHP’s iron ore business is a world-class asset, and it can deliver iron ore to China at around $30/ton, which is 75% below today’s spot price. Iron ore makes up 70% of BHP’s value and despite normalising prices 25% below spot and in line with marginal cost, there is sufficient margin of safety in BHP to build a position.