dare you to short this...

BHP chairman outlays $1m to buy his own in market dip
The Australian
Kevin Andrusiak, Trading
June 17, 2006

THERE can be no better indication of the health of a company than when the boss starts buying up stock on the share market.

Such was the case this week with BHP Billiton, one of the worst affected stocks during the recent slump on the share market and the sell-off last month.

Chairman Don Argus obviously thought the 21 per cent fall in BHP shares in the past month presented such a good opportunity to pick them up on the cheap that he shelled out almost $1 million to top up his stake.

Mr Argus told the Australian Stock Exchange yesterday that he bought 38,200 shares on-market, for an average $25.97 a share.

The buying spree took his shareholding in the company to a touch over $7.6 million.

BHP was one of the big drivers in the 9.9 per cent decline of the All Ordinaries in recent weeks. Resource stocks were hit hard, on speculation that the base metals market had run too hard.

Copper prices had climbed by 90 per cent and other base metals had touched record highs on speculative buying by hedge funds that viewed them as more lucrative than equities.

But volatile trading on the London Metal Exchange coincided with the sell-off in Australian equities and gave resource analysts nightmares about putting a share price valuation on their research.

Zinc miner Zinifex fell 35 per cent, gold producer Oxiana dropped 26 per cent and Rio Tinto shed about 20 per cent.

Market-watchers said the volatility could be put down to short covering in the resource sector.

"A lot of traders and hedge funds have been shorting BHP and Rio to profit from recent falls in their share prices," said Wise-owl analyst Simon Guzowski.

"When the shares started to head north again they had to buy back their short-sold shares to close out their positions, or meet margin requirements.

"Because these short positions are so highly leveraged, failing to do this quickly can become very expensive in the blink of an eye."

Just who has done the bulk of the buying in the past two sessions, when the market returned to positive territory, is a mystery.

Broker anonymity introduced by the ASX makes it impossible to see who is placing the orders.

Institutional and hedge fund traders have the capacity to short-sell stock, although it is becoming popular with retail traders.

Goldman Sachs JB Were analyst Neil Goodwill said the fall in share prices could have attracted offshore interest.

His firm had "buy" recommendations for BHP, Rio, Oxiana, Zinifex, Kagara Zinc and Minara Resources, claiming that global demand, courtesy of China, had run ahead of the miners to expand production.

"Most probably it is international players doing the buying," he said.

If it was international players, they were using local broking firms.

According to Bloomberg, Goldman Sachs JB Were provided most of the activity in BHP shares yesterday.

The firm turned over $142.4 million through 1770 trades, while rival Credit Suisse Equities did $119.7 million through 1428 trades.

CommSec, the nation's biggest online trading firm, churned through $60.8 million worth of stock with 2051 trades.

For Rio Tinto, Credit Suisse was the most active broker yesterday, with $34.5 million worth of shares through 524 trades.

CommSec made 652 trades worth $31.3 million, an average of $48,000 a trade.