BHP Billiton (BHP)

This and Rio Tinto (RIO-N) are on his radar screen, in part potentially for some of his dividend oriented funds. Draws a lot of its revenue and EBITDA from iron ore. Many question the philosophy of the company, i.e. building more capacity in an oversupplied market, in an attempt to bring on more low cost supply, and driving out higher cost producers. This has been a huge overhang on iron ore. They are the dominant producers. Thinks the dividend is pretty safe and they can finance it for the next couple of years at current spot prices.

Has a great dividend. One of the lowest cost producers in iron ore. Their cost of production is about $20, so they can bear some of the costs. This is also a large oil company. If you can see a recovery in China and iron ore gets up to a better level, this stock will benefit a great deal. You are getting a great dividend, 5.3%, to be at these levels.

(A Top Pick March 4/14. Down 22.5%.) For him it is all about, can they make money and can they pay their dividends and be a sustaining business going forward. They need to make $10 billion, and they can easily make about $25 billion this year. They have incredible flexibility in their CapX plans. This is defence on a currency basis and on a dividend. He is down about 10% when you take into account currency fluctuation.

This gives a 5% yield and the stock can go up a couple of dollars a year, giving an 8%-10% rate of return. They also have copper and oil businesses which he thinks can incrementally improve.

The whole mining sector has rolled over, and as a value investor, he likes to buy commodities when they are cheap. They could get a little cheaper, but there are some structural stories here. One is that some non-core assets are being spun out. Its balance sheet will enable it to take advantage of some of the weaker players, particularly in the iron ore/copper plays. Also, have some energy exposure. Likes the rising dividend yield. Dividend yield of 5.23%.

Balance sheet is good and it is a dividend growth profile story. They were the 1^st to rebalance their portfolio. They are obviously trying to deal with the slow demand of the Chinese. They are going to ramp up iron ore production and use their high balance sheet to drive the high cost producers out of the market and ultimately lead to more consolidation. They will then start to pick up some of the weaker players. There could be some near term downside. Yield of 4.33%.

Bought in the financial crisis and then sold it this year. When commodities trend up or down they can really, really do so.

Iron ore broke down. BHPs cost of production is much lower than others and so it can do alright at these levels. They cut back cap-x and sold off some non-core businesses. The stock fell because people expected them to increase the dividend and buy back shares more aggressively. They have expanded into oil and gas. Trades at 15 times and they have a nice dividend yield.

They are spinning out some assets. Shareholders will probably get them as a dividend. He likes what will be left in it and he will sell the spin out and keep the core company.

BHP Billiton (BHP-N) or Teck Resources (TCK.B-T) for a long-term dividend/value investor? These trade on similar multiples. He likes this because it is a much larger conglomerate on the mining side. Although their big resource in iron is tied to China, they have other resources. With mining and China slowing down, they were able to sell off poor assets. Have Capital expenditures. This would be his preference.

If he didn’t have much in international, this would not be the name that he would be looking at right now. Iron ore is very dependent on the demand for steel. With the slowdown in construction, and housing in particular, and China, he expects it to continue. He would avoid any of the iron ore companies.

Thinks he can get a 15-20% rate of return plus currency gain.

An Australian mining company. Likes this because it is diverse, has a great balance sheet and has very good exposure to iron ore, which is one of the better commodities.

(A Top Pick Jan 23/13. Down 14.63%.) The story was primarily that China was going to take everything but that has changed. The big commodity plays have figured that out so they are obviously now developing the Indonesia’s, India’s, Brazil’s markets because those countries are going to need copper in order to develop their economies. An added benefit is that they have the energy assets. Their new CEO has energy and commodities. Good balance sheet. Likes it long-term. Just buy it and put it away and you’ll be fine.

Even without Canadian $ advantage this one should do well. It looks like it is coming off here. Hoped we would not have to own something as big and boring as this one.