The most important part of yesterday’s BHP interim results wasn’t the $8 billion profit or the extra $10 billion in share buy backs or CEO Chip Goodyear handing in his notice – it was the careful redefinition of the economic world order. It was also a strong forecast that the Australian economy will remain hearty for the next three to five years, whoever is in the Lodge.

Several commentators saw the massive share buy back announcement as a vote of confidence in BHP’s future, but the reason BHP is confident about its outlook is the diverse strength of the global economy that it relies on.

Never mind what various public and private economists are game to forecast, BHP is betting billions on its grasp of global supply and demand – and it’s a much better grasp that the federal treasurer has demonstrated with his “resources boom is over” comment.

The half-yearly report contains a couple of pages on the global and commodity outlook that is summarised in one paragraph:

While we expect a constructive environment, the path of the US economy is uncertain. Although the US economy will continue to have an important impact on the global economy, it is increasingly clear that improved economic conditions in other OECD countries and the increased relevance of emerging economies is decreasing the global impact of US economic activity. As a result the global impact of a slow down in the US is expected to be lower than generally assumed and we do not anticipate a return of prices to longer run averages over the medium term.

Which translates to this structural resources boom continuing for at least three to five years, underwriting the Australian economy in the process unless we do something particularly stupid. The challenge is whether we’ll have governments brave and intelligent enough to make something of this opportunity.

As for BHP itself, the numbers show a massively rich and strong company that dwarfs all other Australian enterprises, a company with low debt and free cash flow of more than US$8.6 billion this year and US$10.6 billion in 2008, according to Goldie Were’s analysis.

And the joke is that it’s still relatively under-appreciated by a stock market that continues to prefer to run off chasing private equity hares and takeover rabbits.

Peter Fray

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