Why BHP Billiton is important for investors

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BHP overview

BHP Billiton (BHP) is a leading global diversified resources company. It’s one of the world’s largest major commodity producers. The commodities include iron ore, metallurgical and energy coal, oil and gas, copper, aluminum, manganese, uranium, nickel, and silver. It’s headquartered in Melbourne, Australia.

BHP operates through 100 locations in 25 countries. It was created when BHP and Billiton merged in June 2001.

EBITDA contribution

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BHP’s segments

BHP’s work is organized into five business units:

  1. petroleum and potash
  2. copper
  3. iron ore
  4. coal and aluminum
  5. manganese and nickel

BHP’s main focus is to own low-cost, long-life assets. In keeping with this focus, it decided to spin off the assets into a separate company. The assets don’t fall into this category. They aren’t the center of its approach. Most of the demerged assets were small compared to the “core”—iron ore, coal, copper, petroleum, and potash. They contribute 3% of the overall earnings before interest, tax, depreciation, and amortization (or EBITDA).

Peers

BHP competes against different players in each of its product segments. Overall, Rio Tinto (RIO) is its closest diversified peer. It operates in product segments like iron ore, aluminum, copper, diamonds, minerals, and energy.

Vale S.A. (VALE) is less diversified. It operates out of Brazil. It’s the largest iron ore mining company in the world. Cliffs Natural Resources’ (CLF) international segments compete against seaborne iron ore and coal players—including BHP.

Exchange-traded funds (or ETFs)—like the SPDR S&P Metals & Mining ETF (XME)—are a good way for investors to gain exposure to the metals and mining sector without picking individual companies.

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