Late last year I gave Charlie Aitken a serve for recommending Fortescue as one of his three top picks for 2014. So far that has worked nicely in my favour with FMG down over 20% since. Today Charlie is back with another iron ore play, BHP:
BHP Billiton remains Australia’s largest global market capitalisation company yet I continue to feel the cultural and business change under CEO Andrew Mackenzie is under-appreciated by most investors.
There are two reasons for this. The first is Mackenzie is relatively low profile and goes about his business of running the business. That is a very good thing. The second is when it comes to mining stocks the market is besotted by commodity prices rather than stock specific internal stories.
To my way of thinking this is leading to the BHP cost out, productivity, production growth, simplification and capital discipline story sneaking up on investors who are purely focused on the daily spot price of iron ore.
No doubt the falling iron ore price and resilient Australian Dollar are macro negatives for BHP (currently 48% of group revenue), yet with their high fe grades and place at the bottom of the iron ore cost curve (+ commodity diversity) they are the least effected by falling iron ore prices in AUD terms.
But the iron ore price is a transparent “known known” and what I want to focus again on today the less focused on story of what Mackenzie and his management team are doing at BHP.
Cautious on iron ore pure plays now. BHP is very obviously the best of the major ore producers given it’s got the lowest exposure but that’s like arguing you should drink from a muddy puddle rather than the toilet when a range of Evian spring water is available elsewhere.
The time to buy will be when blood flows through the gullies of the Pilbara and not before.
