A promotional sign adorns a stage at a BHP Billiton function in central Sydney in this Aug. 20, 2013 file photo. (Reuters Photo/David Gray)

Sydney. BHP Billiton’s strategy of diversifying across commodities was designed to shield the miner in a volatile sector, but its entire suite of products suffered double-digit price falls in the latest half-year.

Unlike rivals which rely on one or two minerals, the world’s biggest miner has 10 major commodities, including its so-called “four pillars of growth” — iron ore, copper, petroleum products and coal.

All four are currently at multi-year lows and forward price curves charted by Reuters suggest that is unlikely to change soon.

“The beauty of diversification is that when one commodity is down, one of the others picks up the slack,” said James Wilson, a mining analyst for Morgans Financial. “That’s not happening right now for BHP.”

The price BHP received for all 10 of its major commodities in the six months to June has slumped from the same time a year ago, led by a 49 percent fall for oil, 46 percent drop for US natural gas and 45 percent for iron ore.

The declines underscore BHP’s focus on squeezing value from its operations and cutting costs, while non-core assets such as manganese, aluminium and other unloved commodities have been spun off into a separate company, South 32.

“The key to BHP’s strategy is being low in the cost curve and making sure that their costs are falling at a greater rate than those industry-wide, so the pressure from lower commodity prices is worse for the competition,” said Rohan Walsh, a fund Manager at Karara Capital, which owns BHP shares.

Range of products

Unlike rival Rio Tinto, which relies on iron ore for 80 percent of its profit and has no petroleum division, only about half of BHP’s revenue is reliant on the steelmaking commodity.

Not that oil is proving a salve.

Fiscal 2015 financial results released on Aug. 25 will include more than $2 billion in impairments on BHP’s US shale operations — the third write down in three years. Rig terminations will mean further losses to underlying attributable profit of up to $100 million.

Only at an oil price of $60 per barrel and a gas price of $3.00 per million British thermal units (mbtu) can BHP’s onshore operations be cash flow positive in the 2016 financial year, according to the company.

Henry Hub gas stood at $2.88 per mbtu on Wednesday, while oil hovered around $50.16 per barrel.

Copper is also problematic.

After a 14 percent drop in selling prices in fiscal 2015, BHP on Wednesday disclosed it will book up to $650 million in impairments, while another $382 million will be cut from earnings before interest and tax due to the repricing of 350,000 tons of copper sold the previous year on a provisional basis.

Copper is selling for around $2.47 a pound, not far off a six-year low, while BHP’s output will also fall next year due to lower grades at its Escondida mine in Chile.

Iron ore is still the flagship and BHP is showing no signs of rethinking a gameplan to take annual production close to 300 million tons annually from 254 million in fiscal 2015.

The extra cargoes and a drive to further lower costs will help offset a decline in the iron ore price, which Capital Economics analyst Caroline Bain forecasts will hit $45 a ton by December. BHP realized an average price of $61 a ton in fiscal 2015, down from $103 a year earlier.

BHP beefed up its metallurgical coal output by 13 percent in hopes of mitigating a 20 percent fall in price, only slightly less painful than the 22 percent price fall in thermal coal.

A potential “fifth” pillar, potash, will meet a world awash in the fertilizer if BHP enters the market by developing its Jansen mine in Canada.

BHP chief executive Andrew Mackenzie pointed in the company’s half-year production report to lower costs and significant cuts in capital spending.

“We remain confident that our focus on best-in-class performance together with our unrivalled asset quality, optimal diversification and continued investment in high-return projects, will create long-term value through the cycle and deliver superior returns to our shareholders,” he said.

Reuters

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Sydney. Gold miners are spearheading a wave of merger and acquisition activity in Australia, riding a rebound in local gold prices to pounce on projects promising quick growth.

In the first signs of life since the country’s mining boom went bust three years ago, companies are buying assets from international rivals tightening their belts, and partnering with fellow Australian miners.

“Everyone is looking for assets that enable them to grow. We’ve seen more M&A in Australia in 2015 than in the past five years,” Ian Murray, chairman of Perth-based Gold Road Resources told Reuters, referring broadly to the level of interest in the sector.

Progressive central bank interest rate cuts aimed at knocking down the Australian dollar and falling labour and mining costs are adding fuel to the frenzy.

Gold output in the world’s second-biggest producing country after China reached a decade high last year and is tipped to rise further in 2015.

Evolution Mining, snapped up Barrick Gold’s Cowal mine on Monday for $550 million, giving it a large low-cost mine and putting it ahead of Northern Star Resources to be the no. 2 Australia-listed gold miner.

A bidding war for the mine attracted 17 different parties, two sources familiar with the process said.

U.S-dollar gold prices are down 37 percent since a late 2011 peak, but Australian dollar gold hit a two-year high in February and is still up 10 percent since early October.

“The confluence of big overseas miners looking to repatriate to their home bases and strong indicators such as a weaker Aussie dollar is driving the market further into M&A activity,” said Gavin Wendt, an analyst with MineLife consultants.

“Add in cheap labor post the boom and a vibrant mid-tier gold sector and it’s not hard to see why things are accelerating.”

Northern Star remains in a position to make “value accretive acquisitions” after buying four mines from Barrick and Newmont Mining, according to chief executive Bill Beament.

Deals pick up

Over the lean years, when a strong local currency and high costs trimmed margins, miners skimped on exploration, leaving sparse opportunity to grow organically.

So far this year there have been some 26 announced deals in gold mining worth more than $1.7 billion, compared with about $2.2 billion over the previous two years, according to Reuters data.

Newcrest Mining Ltd’s half-million-ounces-per-year Telfer mine could also go on the block this year, after managing director Sandeep Biswas said in February it was time to time to consider “alternative ownership options”.

Evolution tipped it was looking for more mines after paying $230 million in April to acquire two lodes from Luxembourg-based La Mancha Group International, which will contribute A$112 million ($88 million) to the Cowal deal.

“The lens we are looking through at every opportunity that comes across our desk is whether it will improve the quality of our portfolio,” Evolution executive chairman Jake Klein told Reuters.

Evolution will also pay A$9 million for 19.9 percent of Phoenix Gold, which is accelerating exploration in the Western Australia Goldfields district, where the majority of Australia’s 284 tonnes of gold was mined last year.

“Assets are being sold at a low point in the cycle and if you position yourself to accumulate them, you are going to do very well,” Klein said.

Still, warns Northern Star’s Beament, as more more buyers show their hands, M&A costs can only go up.

“We are in the business of generating superior shareholder returns. Paying some of the premiums being asked for gold assets in today’s market is not consistent with that objective,” he said.

Reuters

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