commodities rebound, page-25

"One of the major rules of trading is not to fall in love with a stock." - Volt.

Love is blind, or maybe not. I love BHP for the following reasons:

Coal.
Japan's Nippon Steel agreed to pay $300 per metric ton for BHP Billiton's (BHP) coking coal supply, a price rise of more than 200%, amid increased demand and supply shortages. The huge increase will boost BHP's revenue by over $7B.

Oil.
Oil prices recently crossed the $US120-a-barrel mark and look like hovering at somewhere above $US90 over the medium term. Consider for a moment just the immediate impact of the oil price on BHP. Analysts continue to base profit forecasts on assumed oil prices of between $US70-80. This is way off mark. BHP petroleum will generate more than $US20 billion in the near future. And if it maintains its current 70 per cent margins, an EBIT contribution of something like $US14 billion.

Iron.
Recently, BHP said third-quarter iron ore output rose 22 percent to a record. Bhp will get at least an 80% increase in its iron ore contract... ultimately. What this will do to its bottom line is worth imagining. None of the major broking houses have analyzed this in detail because of their involvement with the Rio bid.

The future.
Olympic Dam and a resurgent uranium. No doubt a mega project with mega costs. But there is only one miner in the world that could pull it off.