One of the key qualities I look for when investing in a company is an ability to think on its feet.
Indeed, no matter how strong a company is, no matter how good its products are and irrespective of how much success it has enjoyed in the past, things change. An ability to think quickly and move with change is crucial, in my view, to the long-term success of any business.
So, I was pleased to read about developments concerning BHP Billiton (LSE: BLT) (NYSE: BBL.US) and its vast potash mine in Canada recently.
As you may be aware, the potash marketplace is highly uncertain at the moment and, when coupled with the fact that the demand outlook for BHP Billiton’s metals is also in doubt, it means that the company is coming under increasing pressure to make better, more efficient use of its assets.
Indeed, it appears as though the company is fully aware of this requirement; choosing to adapt to circumstances rather than keep its head down and push ahead with existing plans that may have turned out to be out of kilter with the present situation.
BHP Billiton is actively seeking partners and is stretching the timetable for the project, declaring that it will spend up to $2.6 billion over the next four years to build shafts and surface infrastructure at the Canadian mine. This would enable it to commence large-scale mining from 2020 onwards.
However, with demand seemingly waning, it seems logical and prudent to adapt to changing circumstances. This is what BHP is doing and, as a shareholder, it gives me greater confidence in management’s capability.
In addition, I am attracted to BHP Billiton’s current valuation. It trades on a price-to-earnings (P/E) ratio of 13.1, which compares very favourably to the FTSE 100 on 14.9. Of course, BHP Billiton’s P/E is higher than the wider basic materials industry group, which has a P/E of 11.4. However, I believe that the diversity provided by BHP Billiton, in terms of the sheer range of metals it mines, means that the premium is well-worth it.
Furthermore, growth prospects are very encouraging, with earnings per share growth of 18% forecast for next year. This puts BHP Billiton on a price to earning growth (PEG) ratio of just 0.72.
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> Peter owns shares in BHP Billiton.
