price target of 12 after profits fall, page-36

These are some fundamental significant issues facing BHP right now:

1. Open access significantly erodes BHP’s and RIO’s iron ore moats. The barrier to entry for small iron ore hopefuls is a capital cost in the billions. Building a rail line and port is an expensive business as we have seen with Fortescue. The latter luckily jagged a very small window of opportunity. Funding was cheap, the iron ore market hot and mining speculation in overdrive. The project simply would not get up in the current, post credit crisis environment. Open access turns a small window of opportunity into a near permanent, red carpeted open door. The joke that is East Coast coal haulage is apparently the benchmark.

2.China Weekly Iron Ore Import has decreased from 1640 to 820.

3. Sweet Crude has fallen nearly 50% off its highs to 73.41.



4. All other commodities are weaker.

5. General Market Malise.

A much more interesting play is either a crack at taking out FMG and/or RIO. By doing so will provide dominance of access to fields in the Pilbra and provide BHP with massive domineering economies of scale.

This is a very interesting play right now and as I posted previously is definately in that accumulate area. A higher profit but slightly more risky play is RIO and an even higher profit and more risky play is FMG,

If investing in BHP maybe not a bad idea to sprinkle in a little RIO and FMG at the same time?