BHP Billiton Ltd. (BHP)is the world's largest diversified resource company with operations in 25 countries. Notwithstanding the associated anti-trust issues, we believe a potential merger between BHP and Rio Tinto Plc (RTP) can deliver synergy benefits and offset rising operating costs, which have been trending upwards.
In addition, the merged company would become the world's largest producer of copper and aluminum, and the second-largest provider of iron ore. Nonetheless, given that Rio Tinto rejected the terms of the original proposal, the deal seems far from certain. Moreover, fear of a global economic slowdown leads us to maintain a cautious outlook on the stock. We retain our Hold recommendation on shares of BHP.
BHP is well positioned to benefit from continuing strong demand, primarily from China and the broader Asian region. The company also has long-term contracts with its customers. The petroleum unit is benefiting from strong oil prices and increasing production from the start-ups of Atlantis and Genghis Kahn in the U.S. and Stybarrow in Australia. The petroleum group's production profile will continue to increase in the second half as these operations ramp up and the Neptune and Zamzama expansions are commissioned.
Further, BHP has a strong balance sheet with healthy cash generation and low debt level. On July 17, BHP announced that Billiton Mitsubishi Alliance, a joint venture between BHP Billiton and Mitsubishi Corporation, has entered into an agreement to acquire 100% of the New Saraji Project from New Hope Corporation Limited for a cash consideration of approximately US$2.4 billion. On July 11, BHP announced the completion of Anglo Potash Ltd. acquisition.
Read the full analyst report on BHP
Read the full analyst report on RTP
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