What is wrong with BHP Billiton? Well, a lot, according to Bernstein’s senior mining analyst, Paul Gait. London-based Mr Gait says the Big Australian is “a colossus with feet of clay” in a 54-page note that puts BHP through the wringer.
His views are understood to be in line with those held by pockets of the market in London. BHP shares have taken a hammering there in the past five weeks, falling 13 per cent since the start of December to 1324.50 pence on Tuesday. In Australia, BHP has plunged 29 per cent since August to $28.11.
BHP does not deserve the valuation premium it enjoys over its “high-quality” peers, particularly arch-rival in iron ore, Rio Tinto, Mr Gait said.
And he said it is doubtful BHP is ¬willing to take responsibility for capital discipline, including withholding supply. He accuses the mining giant of “hubris” over its potash strategy.
BHP has a set of some of the highest quality, best-run assets in the game across its four pillar commodities – iron ore, copper, coal and petroleum. That quality, combined with low operating costs and broad diversification have made BHP a “must-own” mining stock.
But this is no longer the case, Mr Gait said. While he struggled to fault BHP on “any metric of operational efficiency or asset quality”, he also said that is ¬simply “not enough”.
Bernstein has slapped a “neutral” rating on the miner.
COAL SHOWCASES STRATEGIC FLAWS
Mr Gait is scathing of BHP’s strategies for two of its four pillars – metallurgical coal and copper.
“As the dominant player in the global metallurgical coal markets, BHP has been unable to take advantage of this position with any credible strategy,” Mr Gait said in a note published last month.
“We see this as an example of the potential wider weakness in strategy at the company with respect to its capital discipline and supply decisions.”
He is concerned about the growth prospects for copper, which currently accounts for about 20 per cent of BHP’s group earnings before interest and tax.
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