BHP's dip just a blip for ChipBy Andrew TrounsonAugust 25, 2006...

BHP's dip just a blip for Chip

By Andrew Trounson

August 25, 2006 12:00am


BHP Billiton chief executive Chip Goodyear says he sometimes has a "chuckle" at some of the share-price falls companies suffer in a fickle market, because he prefers to focus on the long term.

So, he wouldn't have been too concerned yesterday when BHP shares, after having posted a new Australian corporate profit record of $US10.45 billion ($13.7 billion), fell 88c, or 3 per cent, to $27.51.

The fall came with an easing in otherwise high metal prices, and some disappointment that BHP's results didn't beat expectations.

And while analysts are expecting another record this year and maintaining their "buy" recommendations for the stock, they aren't all happy, given continued strong commodity demand, tight global mine supply and BHP's rising production profile.

"Delayed new projects, cost overruns, production disappointments, lower disclosure and management access, senior management departures and strikes take some gloss off a strong result," Goldman Sachs JB Were resources analyst Neil Goodwill complained in a research note.

"We believe these issues would test the market's patience in weaker markets, but we aren't in a weak market," he said.

Australian stocks slumped nearly 2 per cent yesterday, as investors were unnerved by US home sales that were weaker than expected.

BHP is struggling to increase oil and gas production and hopes new petroleum chief Michael Yeager will provide more operational and development focus. It is also facing cost blowouts in Western Australia and the Gulf of Mexico.

It also faces an ongoing strike at its Escondida copper mine in Chile, the world's biggest, which is losing $US16 million in profits every day, according to Credit Suisse.

But with BHP forecasting continued strong commodity prices and demand, the market is already speculating on BHP increasing the $US3 billion share buyback it announced on Wednesday.

"Clearly, that outlook opens the door for ongoing capital management initiatives and opportunistic mergers and acquisitions," Macquarie Equities said.

Citigroup yesterday said BHP could complete its newly announced buyback in less than six months, raising the possibility of further capital returns in early 2007.

"The $US3 billion buyback wasn't enough to quench the market's thirst for capital returns, but history would indicate completion in less than six months," Citigroup said.

And while BHP will initially focus the buyback in the cheaper UK listing, Citigroup believes the majority of the buying will still be in the Australian listings, given the attractive 14 per cent discount its previous buyback achieved in the Australian market.