The latest numbers show BHP Billiton is continuing to widen its hefty lead on its global diversified mining peers.
BHP Billiton’s results for its fiscal year to 30 June 2010 unravel much about why the group recently launched a USD 40bn hostile bid for PotashCorp, the world’s biggest miner of raw materials for fertiliser (NPK, nitrogen, phosphate and potash).
BHP Billiton, the world’s biggest diversified resources group (a miner, it also produces oil and gas), reported free cash flow (operating cash flow, less capital expenditure) of USD 8.6bn for the fiscal year. The first calendar half of 2010 saw free cash flow accelerate sharply to USD 7.5bn, compared to USD 1.6bn for the same period in 2009. Only Rio Tinto, the world’s No 3 miner, by market value, was vaguely in touch, producing USD 5.4bn in the first half of 2010. The fundamental difference is that Rio Tinto made very little, a starved-looking USD 100m, during the first half of 2009. Even that was better than most mining companies during that period, after the horrible collapse in commodity prices across 2008.
Timing the creation of one of the world’s biggest miners
BHP Billiton’s bombproof balance sheet forms a blockbuster to rival bidders for PotashCorp. BHP Billiton’s USD 40bn all-cash bid for Canada-based PotashCorp, the world leader in fertiliser raw materials (NPK, nitrogen, phosphate and potash), has fuelled all kinds of speculation as to the possibility of rival bidders. PotashCorp has flagrantly rejected the offer, the world’s biggest diversified resources group. Various news agencies, quoting unnamed sources, have cited possible rival bids from Brazilian supergroup Vale, the world’s No 2 miner by value, and also Rio Tinto, which ranks No 3. On Monday, Vale flatly rejected the speculation. For its part, Rio Tinto in early 2009 sold Vale its potash assets in Argentina and Canada, for USD 850m. Vale then continued to make acquisitions in the fertiliser sector, mainly in Brazil. Prevailing speculation about which firm may do what next seemingly overlooks strategies, and perhaps more important, financial firepower. Rio Tinto not only sold off its interests in potash, but also continues to recover from its horribly expensive USD 38bn cash buy of Alcan in 2007. The collapse in commodity prices across 2008 saw Rio Tinto forced to let go of news on 12 February 2009, that following crippling debt of USD 38.6bn on 31 December 2008, it would seek to raise USD 12.3bn from smaller rival, unlisted Chinalco, by selling equity stakes in some of Rio Tinto’s most prized aluminium, copper and iron ore assets.
UK regulations could prove obstacle to a BHP deal sweetener
According to UK regulations, a shareholder vote is needed if a takeover price rises above 25% of the company’s total market capitalisation, a detail BHP will have to keep in mind. BHP Billiton’s hostile $39 billion bid for fertiliser group Potash Corp faces a potential obstacle — formal approval by its own shareholders — if it sweetens its offer by more than 22 percent. That threshold based on UK listing requirements is likely to come into any BHP deliberations on how much to sweeten its bid for Potash Corp, the world’s biggest fertiliser company.