BHP Billiton Workers on Strike - Analyst Blog

Per Reuters, workers at BHP Billiton Ltd.'s (BHP) South African aluminum smelter have struck work for higher wages and better working conditions. Workers demanded a 12% hike in their salary besides 50% contribution from the employer to a certain medical aid scheme. However, BHP Billiton is ready to enhance wages by 7.5%.

The workers' demand is not expected to be met due to the heavy losses BHP Billiton has borne recently. The company withdrew its buy-out offer for Canada's Potash Corp. of Saskatchewan Inc. (POT), the world's biggest fertilizer manufacturer, on non-clearance under the Investment Canada Act.

BHP Billiton is expected to suffer losses of $350 million, of which $250 million has been decided to be shown as an exceptional item in the December 2010 interim accounts.

BHP Billiton also sustained a production loss based on the dissolution of the joint venture with Rio Tinto Plc. (RIO). The joint venture would have substantially increased BHP Billiton's iron ore production in future. The joint venture for producing iron ore in Australia was dissolved with no break fee when it was disapproved by some of the Australian regulators.

However, BHP Billiton's commitment to long-term growth through its key investment strategy looks promising with 20 projects on hand. During fiscal 2010, BHP delivered five growth projects and approved two major schemes with a total budget of $695 million.

Besides, the company made pre-commitments totaling $2,237 million to start work on four more projects. BHP Billiton, at present has 20 projects on hand totaling $25 billion.

Further, we believe that the ongoing industrialization in China, the largest iron-ore importer, will improve the demand and prices of its products in future. Fiscal 2010 bears evidence of the fact that both demand and prices improved due to strong growth in China and India.

BHP Billiton maintains a progressive dividend policy with fiscal 2010 dividend of 87 cents per share, up from 82 cents in fiscal 2009, which represented an increase of 17.1% from fiscal 2008.

A continuous growth in dividend raises shareholder sentiments and confidence, which inspire our optimism about the stock. Thus, we reiterate our Outperform recommendation on the stock. The stock at present retains a Zacks #2 Rank, equivalent to a short-term Buy rating.

 
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