Olympic damn!

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BHP has canned Olympic Dam. I have no idea why. The company has $4.7 billion in cash (albeit from $10 billion last year), almost no debt and can borrow at 3% for twelve year bonds.

Copper and uranium are supposed to be a part of the next wave of Chinese growth, with copper a central ingredient in consumer goods and uranium a central ingredient in greening energy. Olympic Dam is the fourth largest copper deposit and largest uranium deposit on earth.

Based on these metrics, Olympic Dam is a no-brainer, even if production costs are inflated right now. Yet here’s what they said:

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BHP is returning money to shareholders by increasing its dividend. The lucky folks can go stick it in some bond somewhere and get 3%, even 5% if it’s here. Are you telling me BHP can’t make a better return on equity than that? I mean, it’s been averaging returns on equity above 30%:

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And the stockmarket, otherwise known as the village idiot, cheered this on:

Something has gone very wrong with this boom.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.