Yes very nice story , trouble is Uncle Robert doesn't know what's around the corner and nor does anyone else . Europe a basket case , Poms ok , Yanks doing ok , Car industry being crunched world wide at present , top of building cycle [commercial atleast for the shortterm ] But congrats to BHP as it's a huge player and thinks longterm unlike me .lol
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ROBERT GOTTLIEBSEN
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BHP double act timing perfect for $8bn profit
June 07, 2005 BHP Billiton chairman Don Argus and chief executive Chip Goodyear cannot believe their good timing in the WMC takeover - on paper they have already doubled their money.
And if the takeover achieves 100 per cent acceptance, they have theoretically added more than $1.50 a share to BHP's net worth.
These sums should have been calculated by me and others before last Friday because they show WMC has a theoretical short-term value of around $16 a share.
The huge BHP paper profit reflects the fact that the US and Chinese economies have not slowed down as expected and so prices of copper and nickel are substantially above the independent expert's valuation level and uranium looks set to take off.
The timing is amazing.
Last January, the need for uranium was only whispered at the World Economic Forum. Now it is being canvassed in the US and Australia as the only way to avoid a greenhouse disaster without substantial unemployment.
WMC's Olympic Dam co-product, copper, is skyrocketing. At the weekend, the spot price was more than 50 per cent above the WMC independent expert's long-term price. Each 10 per cent rise adds $US1 billion to the worth of WMC.
Nickel is almost double the expert's long-term price, adding $US2.2 billion to WMC's worth assuming the price holds. Uranium is like a coiled spring and former WMC chief executive Andrew Michelmore's prediction of a long-term price of $US30 a pound looks too low. A $US30 long-term price would add $US1.8 billion to the independent expert's worth of WMC.
Goodyear and Argus were probably too busy to do the sums but the rush of WMC acceptances over the weekend means they stand to make a theoretical paper profit of close to $US8 billion (about $10.5 billion) on gaining 100 per cent of WMC.
Those in Rio Tinto, led by chairman Paul Skinner, who were tempted to bid for WMC have now missed a fantastic opportunity. WMC was more valuable to Rio Tinto than BHP. In the final week BHP could have been easily defeated by a determined Rio plunge into the market to buy between 15 and 20 per cent of the stock.
BHP's "bluff" strategy was based on a calculated gamble that Rio would not move because chief executive Leigh Clifford believed there was a very good chance of a big fall in metal prices in the medium term so the short-term theoretical value sums had no meaning. Indeed, this is the view of most analysts and even BHP believes a fall is a distinct possibility.
Last December, reflecting these bearish views, Grant Samuel's independent expert's report on WMC valued the shares at a maximum of $8.24. This was based on a long-term copper price of $US1.05 a pound, uranium at $US22 a pound and nickel at $US4 a pound.
Longer term, the metal bears are probably right but very few of the analysts predicted copper would be so strong in mid-2005. The bearish forecasts anticipate a slowdown -- both in the US and China -- and if that doesn't happen, they will be wrong. If there is a fall, the consequent Australian dollar decline will cushion some of the impact for local miners.
Meanwhile, global production of hybrid cars is about to explode in the next two or three years. These cars require twice as much copper and nickel as conventional cars.
And in the absence of a big price slump, BHP's sums get even better because the increased revenue from Olympic Dam starts about 2010. As Grant Samuel calculates its values by discounting the forward profits by between 8.5 and 9.5 per cent, the numbers will keep rising each year.
When BHP made its bid, I said it was low but the rise in metal prices since then has made the bid, at least on paper, one of the great short-term coups of recent years.
Of course, had BHP not bid for WMC, almost certainly the institutions would have sold it at a much lower price to Xstrata. The greatest danger for BHP is that in its haste to plant the flag of victory on WMC operations, it will destroy a skills base that has very different attributes to BHP.
Foster's shareholders should be overjoyed that Trevor O'Hoy selected Southcorp's Scott Weiss to head the North American operation. That means 0'Hoy understands that part of what Foster's bought in Southcorp was a skills base.
In the case of WMC, those "paper profits" depend not only on metal prices and currencies but on BHP having the skills to continue to produce uranium, should the WMC operational skills base either be shown the door or leave.
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