BHP Billiton could buy Aurelian
UPDATE 2-BHP Billiton eyes expansion in gold, may buy mine
Wed Nov 29, 2006 1:28 AM ET
By James Regan
BRISBANE, Nov 29 (Reuters) - BHP Billiton Ltd./Plc <BHP.AX><BLT.L>, the world's biggest miner of industrial minerals, said on Wednesday it may boost its exposure to the red- hot gold sector.
Gold prices <XAU=> have rocketed this year to their highest in 26 years as a new wave of speculative investors put fresh polish on one of the world's oldest commodities.
BHP Billiton Chief Executive Chip Goodyear said the company was underexposed to bullion, and would look at buying a gold mine if the right one came along.
"It is interesting they are mentioning gold, it is something they haven't focused on in the past," said Mark Pervan, a senior analyst at Daiwa Securities.
"I think the fact that gold prices have moved into a much higher trading level probably has increased the attraction."
Only a fraction of BHP Billiton's $10.45 billion in profit last year came from gold, which it extracts from ore much richer in copper, zinc, lead and other industrial staples.
"Relative to our size, we are not a significant producer. Our view would be that if we found a gold opportunity, could we develop it? I think the answer to that is yes," said Goodyear.
In Australia, the world's third-largest producer of gold and where BHP is headquartered, shares in top gold miner Newcrest Mining Ltd. <NCM.AX>, have increased 5.5 percent this week, with close rival Lihir Gold Ltd. <LHG.AX> up almost 6 percent.
Both companies have long been tipped by analysts as takeover targets.
Speculation has emerged in recent weeks that BHP Billiton may be setting its sights on U.S. miner Freeport-McMoRan Copper and Gold Inc. <FCX.N>, where Goodyear once served as chief financial officer.
"There is consolidation going on in the industry and we keep an eye on everything that's moving," Goodyear said.
He later told reporters that the era of the single commodity mining house was under threat as big firms seek to protect against downturns in any one particular sector.
In the most recent example, Brazilian iron ore miner Companhia Vale do Rio Doce <RIO.N><VALE5.SA> agreed to pay over $17 billion for Canadian nickel and copper giant Inco Ltd. <N.TO>
"Commodity prices will go up and down but when they will do that I don't know," he said.
BHP Billiton Chairman Don Argus told the meeting that delivering growth, possibly via acquisitions, was a much higher priority than returning cash to shareholders.
He said new share buybacks were not a top priority for BHP, which announced a $3 billion buyback in August.
BHP Billiton's first priority was to reinvest back into its assets before repaying debt, and then look at the company's dividend policy, he said
"Once we've considered those items, we look at what's in the capital spending going forward. If we have surplus cash, then we have no hesitation in giving it back to shareholders," he said.
Daiwa's Pervan said the company could consider special dividends because buybacks reduced the liquidity in the market,
"They are cashed up and they can easily do an acquisition of a sizeable amount," he said.
Goodyear said that while the U.S. economy was slowing, a view supported by this week's report from the Organisation for Economic Cooperation and Development, the impact on commodities markets was being offset at least in part by increased demand in Asia and in Europe.
"If you have to have a slowdown in the U.S., now is a good time to have it," he said.
Gold traded above $700 an ounce in May and now sells for about $638, well above the metal's long-term average price.
BHP Billiton said cost pressures continued to hit progress at its Ravensthorpe nickel mine in Western Australia state.
Last month, it warned that Ravensthorpe, though 60 percent complete, was about 30 percent over its $1.34 billion budget.
BHP shares rose 0.2 percent to A$25.85 on Wednesday, lagging a 1.3 percent increase in the benchmark index. (Additional reporting by Ben Wilson and Denny Thomas)