This Makes Me Even More Bullish On BHP Billiton Plc

Developments in Belarus are usually not on my radar. However, news that a company called Uralkali is set to exit a potash cartel of which it is a member made me sit up and pay attention this week.

The reason is that BHP Billiton (LSE: BLT) (NYSE: BBL.US) is in the process of developing its potash capabilities, and the news in Belarus means that the price of potash is likely to fall substantially. Indeed, many commentators are estimating that prices could fall by up to 25% by the time Uralkali leaves the cartel.

Clearly, this could lead to write-downs and/or write-offs by BHP Billiton as its expanding potash operations are suddenly worth a lot less than it previously thought. However, the news made me think about what else BHP Billiton is involved in and, in doing so, it made me even more bullish on the stock than I previously was.

Indeed, one of my major concerns about mining companies is their lack of diversity. All too often you find a mining company that is focused upon one or two metals. BHP Billiton, however, is involved in the mining of a long list of metals that include nickel, coal, aluminium, copper, iron ore and even petroleum. A fall in the price of one or two of these would not kill the business, and so BHP Billiton offers diversity in the types of commodities it mines.

Furthermore, BHP Billiton enjoys geographical diversification, thus lessening country-specific risk. Certainly, it is focused upon Australia and, as such, enjoys relatively low political risk from doing so. However, it operates across the globe, which means that political or social issues in one part of the world are less likely to put the entire business in jeopardy.

In addition, BHP Billiton currently offers a well-covered yield of 3.8% and trades on a price-to-earnings ratio of 9.3. This is lower than both the FTSE 100 (14.3) and basic materials industry group (10.4), which to me says that shares represent very good value.

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> Peter owns shares in BHP Billiton.