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    BHP vs. Rio Tinto

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    eholmes80
    Report for Financial Analysis Class: University of Edinburgh Business School By: EB Holmes, Rema Dahler, Nika N., and Y Wang.

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    BHP vs. Rio Tinto

    Uploaded by

    eholmes80
    316 views54 pages
    Report for Financial Analysis Class: University of Edinburgh Business School By: EB Holmes, Rema Dahler, Nika N., and Y Wang.

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    Report for Financial Analysis Class: University of Edinburgh Business School By: EB Holmes, Rema Dahler, Nika N., and Y Wang.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    316 views54 pages

    BHP vs. Rio Tinto

    Uploaded by

    eholmes80
    Report for Financial Analysis Class: University of Edinburgh Business School By: EB Holmes, Rema Dahler, Nika N., and Y Wang.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 54

    BHP Billiton

    Financial Analysis as of March 14th 2012

    3/18/12

    Agenda
    1) 2) 3) 4) 5)

    6)

    7)

    3/18/12

    Recommendation Overview Strategy Risks Financial Analysis Ratios Financial Analysis Four Slices Valuation

    Recommendation

    Buy! 2011 Group Market Cap: US $234B Group Segment DCF Valuation: US $236B CUVI: US $2.9B GOV: US $174B

    3/18/12

    Overview

    BHP Billiton comprises two entities: BHP Billiton Limited BHP Billiton Plc. 100 mining sites in 25 countries. Headquartered in Melbourne, Australia Employs over 100,000 people including contractors. 10 Operating Segments: Iron ore, Petroleum, Uranium, Aluminum metallurgical and energy coal base metals, nickel, manganese diamonds and specialty products

    3/18/12

    BHP Billiton Overview

    Click to edit Master subtitle style

    3/18/12

    Key Dates

    2001 Australian Broken Hill Proprietary (BHP) merges with the UKs Billiton. Billiton CEO becomes Group CEO, but resigns 6 months later

    2003 The company begins a $5 billion investment in oil extraction 2005 R&D Alliance with Chinese Academy of Science (CAS) 2008 BHP Billiton attempts to buy Rio Tinto. Board Rejects 2009 BHP and Rio Tinto form 50:50 Joint Venture in Australia (Iron Ore)

    2011 Acquisition of Chesapeake Energy Corporations USA 3/18/12

    Mining and Extraction Industry Observations


    Sensitive to Commodity prices Sensitive to taxation such as Australian MRRT: Minerals Resource Rent Tax (From July 2012) and Carbon pricing Capital Expenditure High Consolidation Technology Increasing Extraction Potential

    3/18/12

    Strategy

    Click to edit Master subtitle style

    3/18/12

    People

    Group CEO Marius Kloppers Employees: 100,000 Including Contractors 2010: Net Profit per employee: $130,000

    3/18/12

    Elements of BHPs Strategy

    Unprecedented Demand growth due to Industrialization and Urbanization of Developing World Geographic and Industry Diversification Largest source of Profits from Iron Ore and Petroleum

    3/18/12

    Elements of BHPs Strategy

    Heavily investment in Iron Ore and LNG production. Gained technical expertise in oil drilling from recent Acquisition of Petrohawk ($12.1 B Cash) Similar Drilling Procedure for gas and oil. Drill for gas near oil deposits WinWin
    3/18/12

    Geographic & Industry Diversification

    3/18/12

    Source: BHP Investor Presentation, Feb. 2012

    EBIT, EBIT Margin

    3/18/12

    Source: BHP Investor Presentation, Feb. 2012

    Sources and Uses of Cash

    3/18/12

    Source: BHP Investor Presentation, Feb. 2012

    Risk Analysis: SWOT

    Strengths

    Balance Sheet and Cash Position Centralized Marketing Engine

    Weaknesses

    High Copper Extraction Costs Low Margin on Aluminum

    Opportunities
    growth due to Urbanization and

    Demand 3/18/12

    Click to edit Master subtitle style

    Competitor Analysis: Rio Tinto

    3/18/12

    Source: Rio Tinto Investor Presentation, Sep. 2011 3/18/12

    Copper Extraction Cost Advantage

    Source: Rio Tinto Investor Presentation, Sep. 2011 3/18/12

    Rio Tintos People


    Chairman Jan du Plessis Group CEO Tom Albanese: No Bonus this year Group CFO Guy Elliot Copper CEO Andrew Harding Energy CEO Doug Ritchie Employees: Fewer than BHP Billiton (77,000)
    3/18/12

    Elements of Rio Tintos Strategy

    Geographic and Industry Diversification Largest Market Share Growth: Coking Coal Copper is second profit source after Iron Ore Striving for lowest cost base for Aluminum
    3/18/12

    2011 Net Profit reduced by Aluminum

    Rio Tintos Market Share

    Source: Rio Tinto Investor Presentation, Sep. 2011 3/18/12

    3/18/12

    Source: Rio Tinto Investor Presentation,

    Financial Analysis

    Click to edit Master subtitle style

    3/18/12

    Rio Tinto
    Units: Millions USD 12 10 8 6 4 2 0
    3/18/12

    BHP Billiton
    Units: Millions USD 12 10 8 6 4 2 0
    3/18/12

    Segment Performance

    3/18/12

    High for input costs

    Commodity Price Risk

    Relatively low for outputs Geographical Diversification mitigates this

    3/18/12

    Exchange Risk

    2011 Year on Year Change: $0.22, 3% of profit


    Source: BHP 2011 AR

    Transactional exposure of non-functional currency 3/18/12 expenditure and revenues - Not disclosed

    Liquidity risk

    US$14.2 billion due next year Cash and cash equivalents US$10 billion, unused facility US$4.06 billion. BHP has enough money to pay without taking into account other assets (receivables etc.).
    3/18/12

    Managed by maintaining procedures converting the application for credit approvals, granting and renewal of counterparty limits and daily monitoring of exposures against these limits. No significant concentration. Balance of allowance account for impairment - 2% of gross amount Past-due but not impaired receivables - 6% of gross amount- most less than 30 days

    Credit Risk

    But other information such as counterparties ratings and geographical analysis not disclosed (unknowns!). 3/18/12

    Business Segment Analysis

    3/18/12

    Discounted Cash Flow Valuation Based on segments in Free cash flow= EBIT * (1-tax rate) + D&A changes
    working capital capital expenditure We have disclosure of segment D&A and capital expenditure but not changes in working capital Assumptions: Group changes in working capital weighted by segment assets Discount rate (WACC): 11% Conservative assumptions: 0% growth rate for the next five years and 2% for terminal value)

    Valuation: US $236 Billion

    3/18/12

    PP&E Investment

    3/18/12

    Four Slices Summary

    3/18/12

    Four Slices Valuation Buy!


    12 10 8 6 4 2 0 3/18/12

    Thank You
    Click to edit Master subtitle style

    3/18/12

    Appendix Section
    Selected Strategic Data Click to edit Master subtitle style

    3/18/12

    BHP Market Capitalization

    Source: BHP Investor Presentation, Feb. 2012

    3/18/12

    Source: BHP Investor Presentation, Feb. 2012 3/18/12

    Source: Rio Tinto Investor Presentation, Sep. 2011 3/18/12

    Source: Rio Tinto Investor Presentation, Sep. 2011 3/18/12

    Btoe= Billion Ton of Oil Equivalent, Mtoe=Million Ton of Oil Equivalent Source: Rio Tinto Investor Presentation, Sep. 2011 3/18/12

    Rio Tintos Global Operations

    3/18/12

    Source: Rio Tinto Investor Presentation, Sep. 2011 3/18/12

    Source: Rio Tinto Investor Website (2012) 3/18/12

    Source: Rio Tinto Investor Presentation, Sep. 2011 3/18/12

    Appendix Section
    Selected Financial Data Click to edit Master subtitle style

    3/18/12

    Non-current Assets by Location

    3/18/12

    2011 Summary Calculation

    3/18/12

    2010 Summary Calculation

    3/18/12

    2009 Summary Calculation

    3/18/12

    CUVI Calculation

    3/18/12

    GOV Calculation

    3/18/12

    References
    1. 2.

    ^ "BHP chief in shock resignation". CNN. 5 January 2003. http://edition.cnn.com/2003/BUSINESS/asia/01/05/australia.BHP. . www.exchangerates.org.uk Financial Risk Section

    3.

    http:// www.miningmagazine.com/panorama/rio-and-bhp-join-iron-ore-f 2009 Western Australia Iron Ore 50:50 Joint Venture

    3/18/12

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