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Chip Goodyear's bullish outlook on resources
Brendan Ryan
Posted: Wed, 24 Aug 2005
[miningmx.com] -- BHP Billiton CEO Chip Goodyear today unveiled a bullish vision on the future of the resources sector which, if correct, points to long-term favourable prospects not only for his group but for much of the resource industry.
Presenting BHP Billiton's results for the year to June - which report an 86% jump in attributable profit to US$6,5bn - Goodyear said resources may be poised for a major "secular upswing."
Using a chart of the US commodity price index adjusted for CPI and going back to 1801, Goodyear illustrated his contention that real commodity prices are at their lowest in 200 years.
He believes the rising demand trend from China and India is sustainable over the long-term and could amount to the next "secular change" in the commodity cycle. This could drive up prices on a scale not seen since the boom during period immediately after World War
Two.
Goodyear said there will, inevitably, be "ups and downs" in the overall rising trend which the resource companies must be prepared to cope with.
However, he was dismissive of the negative reactions that have periodically swept the markets in response to various developments in China which some observors have viewed as signalling the end of the boom in Chinese demand.
He described this as a " Chicken Little - the sky is falling" reaction and said a number of the recent developments in China which were viewed negatively "have taken place for good reasons."
Goodyear said BHP Billiton is building such a "secular change" scenario in its planning so the group can respond as it occurs although he added; "we are not betting the company on it."
Illustrating BHP Billiton's ability to respond Goodyear pointed out that in 2001 the group produced 65Mt of iron ore from its mines in the PIlbara region of Western Australia (WA) but that has
risen to 110Mt for 2005.
Since July 2001, the group has invested $6,1bn in 26 growth projects across its range of commodities. BHP Billiton has another three phases of expansion at its WA iron ore operations still to be phased-in from 2007 to 2010.
These are part of a project pipeline over this period which currently stands at 26 projects costing a total of US$11,9bn but Goodyear pointed out that pipeline excludes a "whole suite" of projects which are still at concept and pre-feasibility stages.
Amongst those is the possible Alto Cuilo diamond mine in Angola which is the subject of a JV between BHP Billiton and AIM-listed junior mining company Petra Diamonds.
Another is the Olympic Dam copper/uranium project in Australia which BHP Billiton acquired when it took over WMC Resources.
Goodyear said there was a bright future for energy in general and uranium would be part of it. He described Olympic Dam as a "concept stage" project
adding it will be three to four years before a final decision is made.
Looking to the short-term Goodyear commented; " We are seeing pretty good economic activity around the world in the critical economies. Higher raw material and energy prices are not materially impacting growth. The iron ore market is as tight as we have ever seen it. We are more bullish than we were six months ago."
Goodyear tags Europe as the one "laggard" area affected by subdued economic demand, high unemployment and the strong Euro. "We don't see much growth coming out of Europe," he said.
For the year to June BHP Billiton's turnover rose 28% to $31,8bn ( 2004 - $24,9bn) while the group's available cash flow rose 70% to $8,7bn ($5,1bn). Earnings per share rose 89% to 106,4c (56,4c) while dividends rose 8% to 28c (26c).
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