Aluminum, manganese, and nickel
BHP Billiton (BHP) is a major worldwide producer of aluminum, manganese alloy, and nickel. Its portfolio includes aluminum operations in southern Africa, Australia, and South America. It has manganese assets in Australia. BHP also has nickel assets in Australia and Colombia. This segment contributed to 12% of the company’s revenues. It only contributed 1% to BHP’s earnings before interest and tax (or EBIT) in fiscal 2014.
Production results were mixed
Production results for this segment were mixed. Alumina production was broadly unchanged in the December 2014 half-year at 2.6 million tons. This included record production at the Alumar refinery. Aluminum production declined by 16% in the same period to 517 kilotons. This reflects the suspension of smelter capacity at Alumar and the cessation of smelting activities at Bayside. Manganese ore and alloys reported strong production growth of 7% year-over-year (or YoY). This was due to an improvement in ore recovery at Mamatwan. Nickel production was down 11% YoY, driven by the closure of the Perseverance underground mine at Nickel West in November 2013 and lower grades and recoveries at Cerro Matoso.
Aluminum demand growth has been strong. New supply is expected to continue curtailing high-cost capacity. This should benefit BHP and its peers—like Rio Tinto (RIO) and Alcoa (AA). BHP, RIO, and AA form 32.3% of the iShares MSCI Global Metals & Mining Producers ETF (PICK).
The nickel market isn’t going to pick up as analysts had expected following a ban on nickel exports by Indonesia. This is because there are more supplies of the refined metal and demand in China is slowing. This should affect companies like Glencore (GLNCY), Vale (VALE), and MMC Norilsk Nickel (NILSY).
An exchange-traded fund (or ETF) like the SPDR S&P Metals & Mining ETF (XME) is also a good way to gain exposure to the metals and mining sector without picking individual companies.