Tuesday, March 15, 2011

BHP (BHP), Vale (VALE), Rio Tinto (RIO) and Japan Reconstruction Needs

Miners BHP (NYSE:BHP), Vale (NYSE:VALE) and Rio Tinto (NYSE:RIO) has been generating huge amounts of cash flow, and the situation in Japan, whereby reconstruction will generate significant demand for raw materials, should drive the companies even stronger over the medium term.

As Des Kilalea of RBC Capital Markets puts it, "the reconstruction of Japan will benefit many infrastructure materials in the medium term." For now the focus is on assessing the extent of damage to the country, following crippling natural disasters. Looking beyond the short-term, mining investment programes could well remain unchanged, not least given the long term views built into approvals.

The pace and extent of mining capital expenditure budgets expanded significantly during 2010; 2009 had been a wound-licking year after the 2008 credit markets crisis. For the market leaders, capital expenditure during 2010 exceeded the peak seen in 2008.

BHP Billiton, Vale, and Rio Tinto produced aggregate operating cash flow of USD 62.6 billion during 2010, setting all kinds of records, and underpinning some of the world's biggest market capitalizations (values). BHP Billiton, the world's biggest diversified resources stock (it is also in the oil business), led the pack, with operating cash flow of USD 24.7 billion, underpinning a market value of USD 220bn.

Investors want growth, and these stocks are delivering. BHP Billiton spent nearly USD 10 billion on capital expenditure during 2010; deducted from operating cash flow, this left the group with USD 14.8 billion in free cash flow.

BHP was trading at $86.70, down $2.32, or 2.61 percent, as of 2:20 PM EDT. Vale was at $31.66, falling $0.78, or 2.40 percent. Rio was at $63.87, down $1.25, or 1.92 percent.




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