Successful companies don’t stand still. They’re always evolving. Today, I’m looking at the changes taking place at FTSE 100 mining giant BHP Billiton (LSE: BLT) (NYSE: BBL.US) — and what they mean for investors.
Focus, capital discipline and productivity
BHP Billiton announced the appointment of a new chief executive, Andrew Mackenzie, this time last year. Mackenzie has increased concentration on capital discipline and productivity at the group’s largest, longest-life, lowest-cost assets where there are economies of scale and a competitive advantage.
A shake-up of senior executives upped the focus on operational excellence: five business leadership roles were filled by executives with deep operational experience. BHP Billiton’s five reporting segments and their latest contribution to group revenue are shown in the table below.
| Segment | Contribution to group revenue |
|---|---|
| Iron Ore | 32% |
| Petroleum and Potash | 21% |
| Copper | 21% |
| Coal | 14% |
| Aluminium, Manganese and Nickel | 12% |
At his first AGM, in October last year, Mackenzie told shareholders he would be increasing the focus on the group’s ‘four pillars’ of iron ore, petroleum, copper and coal, while merely continuing to operate the aluminium, manganese and nickel businesses “as efficiently as possible”.
Looking to the future
While focus, capital discipline and productivity improvements are good news for shareholder returns, a more dramatic change for the future will come from the company’s huge commitment to potash, which could become the group’s fifth pillar.
BHP Billiton has exploration rights to over 14,500 square kilometres of highly prospective ground in Canada’s Saskatchewan potash basin; and is progressing its most advanced project in the region with an average annual spend of $800m.
Management expects demand for potash, a fertiliser that improves the yield and quality of agricultural production, to grow at about 2-3% a year to 2030. If its projections are right, potash could start to add significantly to earnings from around 2020.
Rumbling concerns of late about growth in China have BHP Billiton’s shares trading at 1790p — a modest 11 times current year forecast earnings with a prospective income of over 4%. That looks good value to me for investors with a long-term horizon — even without the potential for potash to become BHP Billiton’s ‘fifth pillar’.
