Fair value $4.74 per share

Hey guys

I have just done the numbers across the average commodity prices for the past 6 months, against BHP's commodity price sensitivities which can be found on slide 29 of the 25 August 2015 results presentation.  Based on these figures and assuming average prices are the same in first half of 2016, according to my calculations BHP's net profit will be down $4.7B from $6.4B - leaving NPAT of $1.7B USD or down 73%.  Here are my workings for Iron Ore and Oil, which contribute the overwhelming amount of lost profits:

Iron Ore - $148M per $1/T sensitivity.  FY15 average price $71.  HY16 average price $50.  Impact to NPAT - $3.108B
Oil - $52M per $1/barrel sensitivity.  FY15 average price $72.  HY16 average price $46.  Impact to NPAT - $1.352B

The average price data was obtained from Indexmundi

Please note this does not include lower costs due to extra efficiencies (which I expect them to achieve), nor the changes to AUDUSD exchange rate.  I have also not accounted for the Samarco costs.

The picture is rather grim when you consider their net debt and commitment to keep increasing the dividends.

I do not think we are due for a sudden rebound in commodities which means BHP's fair value should be far lower than current levels.  If the current P/E of 15 is considered fair and profits fall 73% then the appropriate share price is $4.74.

Please correct me if I have made any errors as I am happy to be proven wrong.