Three Way Merger of China's Commodities Rare Earth Producers

Minmetals Rare Earth, Chinalco Rare Earths and Metals Co and China Southern Rare Earth Group Co are merging with the approval of the state regulator, Sasac (State-owned assets Supervision and Administration Commission). Analysts have noted pricing power of rare earths such as dysprosium and terbium (whose prices are up 50% in 2021 and are key inputs into rare earth magnets), will be concentrated in the new rare earths "super group", second only to China Northern Rare Earth Group.

The Cobalt Rush

Mining companies (such as Canadian FirstCobalt)  are looking at sites in Idaho, Montana and Alaska in search of cobalt, a key component of lithium ion batteries used in electronic devices and electric cars (consumption of which is expected to rise 8%-10% per year). 

The DRC (capital city Kinshasa) is currently the largest producer of cobalt. Australia is the other big producer.

Having new sources of the mineral will diversify cobalt consumers' geopolitical risk. There is currently research (e.g. at UCB) into batteries that do not require large amounts of cobalt (Materials Science and Engineering). 

The Cobalt Institute exists to promote sustainable and responsible use of cobalt.

Vedanta Increases Oil and Gas Production, Tullow Monetises Assets

Vedanta's oil and gas production has increased thanks to Cairn India (a subsidiary) which has made its 26th oil strike in Rajasthan. Its iron ore operations suffered due to suspensions in Goa (Western India, with an Arabian Sea coast) and Karnataka. Silver production was up to 13m ounces. Goa put a ban on iron ore transportation due to accidents on the roads.

Tullow Oil, another FTSE oil and gas producer, as part of its "portfolio management and asset monetisation" process, will be selling its assets in Bangladesh to Singaporean company, KrisEnergy, for $42m. This gives Kris a 30% stake in Block 9, which includes the Bangora gas producing facility. Tullow is named after a small town in Ireland, about 35 miles South of Dublin. It's Founder and CEO is Aidan Heavey.

Qatar mulls Morgan Stanley's Commodities Business

Qatari Prime Minister Sheikh Hamad bin Jassim Al Thani (Prime Minister since April 2007) is contemplating a potential stake in Morgan Stanley's Commodities Business, which could benefit both parties in terms of information sharing.The business is run by Colin Bryce (who started his career at the British National Oil Corporation, bought by BP in 1988) and Simon Greenshields (who has specialized in gas and power).

Qatar Holding LLC is an investment arm of the QIA, which has an interest in investing in commodities (which owned 12% of Xstrata, run by CEO Mick Davis, as of end August 2012). Mick honed his financial and board-leading skills as CFO of Billiton PLC.

Miner BHP Billiton postpones Olympic Dam Mega-Project

The Olympic Dam was supposed to be a $30bn project. The idea was to create the world's largest copper and uranium mine, in the heart of the Outback in South Australia. Now this has been put on the back-burner and what's more, no new projects are supposed to be approved till June 2013. This decision has already led to a cut in BHP's workforce in Adelaide, a coastal town in South Australia. Part of this aversion to capital spending is the 35% drop in profits this year although some news channels suggest mining taxes may have played a factor.

It is worthwhile considering the Board of Directors of BHP Billiton. Among them is Lebanese-born Jacques Nasser, the former Chief Executive of Ford Motor Company from 1998 to 2001, who received a $17m golden handshake when he left in October 2001. Marius Kloppers is the Chief Executive of BHP and holds a PhD from MIT in Materials Science and an MBA from INSEAD. Before becoming CEO, Marius circulated through various roles at BHP including Chief Marketing Officer and Chief Commercial Officer.

BHP is involved in onshore gas development of shale resources in the United States and affected by gas prices. In 2012 it has spent just over $3bn developing these resources. Over half its drilling activity takes place in Eagle Ford. In 2013 it expects to spend $4bn further developing these assets. Chesapeake (NYSE:CHK) is especially active in Eagle Ford with 550,000 acres (although most of the production is oil rather than gas). Exxon, ConocoPhilips and Occidental Petroleum have also entered Eagle Ford.

BHP is also undertaking appraisal drilling in the 440,000 acres of the Permian basin (part of Western Texas and South Eastern New Mexico) to evaluate its potential for producing shale liquids. Estimated output is currently around 100Mboe.

This gives us some idea of costs, but what about cash flow? Here are some findings from Graham Kerr's presentation for FY2012. EBIT margin was 39% - this means roughly 39% of revenues weren't consumed in expenses. H2 net operating cash flow was $12bn, slightly lower than in H1.

The history of BHP is a fascinating one. It was formed from the merger of BHP (Broken Hill Proprietary) and Billiton, originally a tin mine on the Indonesian island of Beilitung. Later Billiton expanded into bauxite, first on Bintan and then later in Suriname, leading a largely independent life until its acquisition by Royal Dutch Shell in 1970. When BHP and Billiton merged in 2001 it was dual-listed on both the LSE (BLT) and Australian stock exchanges (BHP) including ETOs.

What is the market capitalisation of BHP? That depends on what exchange you are looking at. Its UK listing is worth about £38bn (Aug 2012).

What about ADV of BHP? On the LSE, it's about 10,000, which means monthly will be roughly 300k.