Commodity companies 'are the new dotcoms' By George Trefgarne, Economics Editor (Filed: 25/08/2005)
Commmodity companies are now as sexy as dotcoms used to be, said Chip Goodyear, chief executive of Anglo-Australian giant BHP Billiton, yesterday, as he announced a near doubling of full-year profits.
The man who heads the world's biggest miner said that rapid economic growth in China means the world could be on the threshold of the sort of change that only happens once every 50 years or so.
Chip Goodyear He brandished a commodity price chart going back 200 years to emphasise the point. This shows that, despite recent record prices for copper, platinum, oil, and others, the price of a basket of commodities - adjusted for inflation - is still lower than at other times of peak demand, such as during the Industrial Revolution or the First World War.
"In our business we are not only subject to normal business cycles but to bigger, structural cycles which happen quite distinctly. Does China represent the next multi-decade increase in commodity prices? We do not know yet," said Mr Goodyear. "But 2006 will be another year of above trend growth."
He believes the Chinese government will not stop the process of development and the West will get used to it. "Once you have the visibility of a better life, it is tough to take it away. Over the next 20 years, they are expecting 400m people to move from the land to an urban environment and it is hard to stop that."
Asked if he was planning on buying up assets in China, he said: "The probability is very low. China does not have any natural resources, with the exception of coal, that have access to markets. There really aren't any."
Mr Goodyear said the effects of rising demand caused by China sucking in imports was being exacerbated by supply shortages and that the average lead time in opening a new mine was now four to five years, because of government interference, regulations and environmental concerns.
"People are extremely active in keeping companies honest," he said. "But everybody wants a piece of the action."
One of the many restrictions fast-expanding commodity companies face is hiring enough good staff. "Five years ago, graduates did not want to go into resources. They did not want to live in the outback or the jungle for 10 years. But now dotcoms and telecoms have fallen off, people are willing to go into the mining business."
Billiton has a fleet of enormous trucks and diggers and Mr Goodyear, a member of the eponymous tyre family, said: "Believe it or not, there is even a shortage of tyres."
BHP Billiton has a dual Australian and British structure and its shares in London dropped sharply by 31p to 804p yesterday.
They have doubled in the past 18 months, but analysts were disappointed the company did not increase its dividend by more, given that attributable profits rose by 86pc to $6.5billion (£3.6billion).
The final dividend was lifted 53pc to 14.5 cents a share, but that made the total dividend for the year up just 8pc at 28 cents a share. On that basis, the payout is covered a generous 3.7 times by profits.
"Their dividend increased by far less than the earnings increase, which may signal some kind of caution regarding the commodity price cycle,'' said Daniel Sacks at Investec Asset Management in Cape Town.
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So Chip is something of an expert???
200 year charts????????
lol does he not know the average moron's memory remembers only what happened today!!!!!!(if not intoxicated, if intoxicated it is much shorter).
Daniel Sacks will mostly likely buy in much larger soon.
Profit taking at current prices will allow many more people to join the gravy train.
Is it not great to live in Australia?????????
The main diffrence between resource stock PRODUCERS & dotcom hopefuls is CASH.
Resource producers are making Cash & Banking profits.
