Tuesday, February 3, 2009

BHP Offers Bleak Guidance

From Bloomberg (Hat Tip: LF), "BHP First-Half Profit Drops 57% on Prices, Write-downs". Excerpt:

The global recession has curbed demand for metals, ending the six year commodity boom that delivered record profits for mining companies. The global economy is worsening and weakness in commodity prices will persist, BHP said today.


BHP has joined Xstrata Plc and Rio Tinto Group in closing mines, cutting output and slashing jobs because of the recession. Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, last month posted a $13.9 billion fourth- quarter net loss after the plunge in metal prices and the company wrote down the value of some mines and assets.

“If the demand outlook continues to weaken, we will continue to take actions that are required,” Kloppers told journalists on a conference call. “It is difficult to predict when this particular business cycle will turn up.”

This isn't good news for Alloy Steel International (OTCBB: AYSI.OB) in the near-term, as BHP is one of its biggest customers. The mid-term outlook, if BHP sticks with its plan to expand its iron ore production in Western Australia by a third by 2011, may be better.

Alloy Steel should report its fiscal 1Q earnings later this month, so we'll see if it has been able to stay profitable in this environment. Assuming the finished goods on Alloy Steel's year-end balance sheet represent Q1 sales (admittedly, a big assumption -- they could represent orders that were canceled or delayed for several more months), figuring a 40% gross profit margin on them, and then assuming that AYSI's net income equals about 18% of revenue (the case for fiscal '08), I get a guess of ~$192k in 1Q earnings, or about 1 cent per share.

The photo above, of one of BHP's mining areas in Western Australia, comes from BHP's website.


Ken Heebner said...

I wonder what happened to Jim Rodger's inevitably higher commodity prices?

I was piggy-backing that little weasel and he fukked me royally.

Jim Rogers said...

I, Jim Rogers (not Rodgers) said there will be corrections along the way.But then I guess you were busy pulling out someone's rotten tooth, dentist!!

DaveinHackensack said...

Back in 2007, I assumed Heebner was following Rogers, but after last year, I'm not so sure. By last summer, Heebner was moving into financials. He certainly wasn't following Rogers on that.

Tech Fund Manager - circa 1999 said...

The internet changing our life is inevitable. This is just a correction along the way! Double down on those internet stocks. Who cares if they don't have revenues yet. It's the future earnings and quality of management that count. And management, in their projections, says they are going to make some major loot next year. For some reason the market is not recognizing this, so I can buy shares at a discount. Now that's what I call a margin of safety.

Oils Well that ends Well said...

Hmmm...Oil from $147 to $35 for a 76% drop.

Just a correction.

No damage to anybody's portfolios, right?

Jim Rogers said...

Yes, it is still called a correction unless oil stays at $35 for the next 5 years. Want to bet your sorry azz on that?

Tech Fund Manager - circa 2005 said...

Hey guess what! Amazon is back up again! I told you all that 1999 and 2000 was just a correction! NOT a bubble.

Oh, I know, it's just Amazon and not those oodles of other small pre-revenue turds I invested in. But still, it showed my thesis was intact! I only had my head in the clouds and wasn't on the lookout for the bear traps under my feet.

Waniel Dahl said...

Dear Mommy and Daddy Bear,


Peaple are being mean to me on the internet. Please please please don't send anyone else to my new blogs. The funny jokes on there are only for my eyes.

Please send some more money so I can double down on SRZ.
...(and eat)
...(and become a movie star)

Jim Rogers said...

Tech Fund Manager,

You are mixing up oil and dot-com-busters with no revenues/business model under the lame ass logic that a bubble is a bubble is a bubble. You felt like a fool and corrected that Amazon was an exception and the rest were duds and never came back up.

Take your pick -
Which of these have prices that will go to zero and never come back?oil/copper/zinc/cobalt/blah/blah/blah...

I heard you stopped giving your weekly conference calls after someone "blasted" your "REAR" because of a load of crap picks every week..is that true?

Buy Altria, PM, BNI and PG and recession proof your dental savings.

Paul Price said...

All the posts attributed to me here were not made by me. Except the one for Waniel Dahl.


Tech Fund Manager - Circa 2008 said...

"Take your pick -
Which of these have prices that will go to zero and never come back?oil/copper/zinc/cobalt/"

I pick...SRZ.TO! That one is never coming back. Neither are oodles of other speculative miners/internet companies with nothing to sell but dreams. But the underlying internet, and commodities...will always be with us. Thanks be unto the Lord Wahlmighty.

Paul Price said...

I meant the one with the corny play on words in the beginning. My hallmark.


Uneducated Idiot! said...

"Underlying Internet" ??

Who are these uneducated idiots fighting it out on this blog? Don't they have anything better to do?
and who the fcuk is the Paul Price?

Waniel Dahl said...

I wish I had bought zinc and oil. I could use the money. 30% of it sure beats nothing. I'm hungry.

Uneducated Idiot,

Paul Price is a very, very bad man.

That's all you need to know.
And yes, you are in good company here. I learned all I need to know from a very long work of fiction.

Hey, want to hear my latest joke?

What do you get when you mate Gary Glitter and Madonna?

Answer: Me!

(Gary, Mad...if you're reading this...FedEx works wonders. Help me out here.)

Tricky Billets said...

Hey Stocdoc, Why are you avoiding the question about the conference calls? Tell these folks the "REAL" story of how you had to end the call and run away after some one called out your picks. Be a man now at least. Peace Peace

Paul Price said...

What on earth are you talking about?

- Paul

Will Shakespeare said...

Nothing is what is seems.

DaveinHackensack said...

Can we move the sniping to the Dramatis Personae comment thread and limit comments here to the subject of this post? Thanks.

On that note: I have an open limit order to add to AYSI at around 36 cents, but it hasn't been filled yet.

Sivaram Velauthapillai said...

FakeJimRogers: "You are mixing up oil and dot-com-busters with no revenues/business model under the lame ass logic that a bubble is a bubble is a bubble. "

A huge chunk of the losses during the dot-com bubble were from companies that actually had revenues (although some of it may not have been.) The no-name dot-coms ended up capturing the popular imagination but, arguably, as much wealth was destroyed in the telecoms and internet equipment providers that rose on the internet hype. Companies like Cisco, Lucent, Nortel, Juniper, and so on, destroyed as much wealth as a thousand dot-coms. Some of these had exaggerated revenue--billed to dot-coms that never could pay--but the rest of it was real revenue (billed to non-tech corporations and governments that were hooking up to the internet, using more wireless networks, etc.)

So the notion, one that is made often by commodity bulls or in some cases hard-currency advocates, that the dot-com bubble was bad because those companies didn't have real sales misses the point. The reason people lose money is only for one reason: high valuation.

If you invest in overvalued assets, it doesn't matter if the asset will exist for the next decade; you will likely lose money. Oil never went to zero in the 90's but many oil companies from the 70's and 80's went bankrupt (or was bought out at really low values--essentially a massive loss for long-term shareholders.)

If the commodities bubble had burst--I'm not sure and can only tell in hindsight in a few years--most commodity bulls will lose money even if commodities don't go to zero (they obviously won't.) All it takes is to have bought overvalued assets.