BHP couldn’t slash fast enough to pay more. Yes, times are tough in mining and resources generally. Yes, mines are closing, tens of thousands of people have lost or are losing their jobs, and company profits are being crimped. But don’t believe our giant miners are on the uppers. Far from it, as the Rio Tinto full-year result (released earlier this month) confirmed. BHP Billiton this morning reported a 25.5% slide in underlying earnings before interest and tax to US$9.22 billion thanks to lower returns from iron ore and oil. But the biggest Aussie of all (sorry, second biggest after the Commonwealth Bank) boosted its dividend (as did Rio Tinto). BHP pushed its interim up to 62 US cents (79 Australian cents) from 59 US cents a year ago (64 Australian cents — what an impact the cheaper dollar makes for local investors). Companies really on the uppers and needing savings usually drag shareholders into their plans by curbing dividend growth. Not our two biggest moaning miners, so excuse the scepticism. — Glenn Dyer

Cheap iron ore, anyone? BHP slashed the cash cost of extracting each tonne of iron ore from its huge West Australian mines by 29% in the half year, to just US$20.35 a tonne, much, much faster than it had planned, and will now push that cost under the US$20 a tonne level. That means it can continue (as can Rio, which has similar costs) to produce and export as much iron ore as it can, even at its current price of around US$63 a tonne, and even less. The dramatic cost cut enabled BHP to almost offset all the impact of the slide in the average price of iron ore it received to US$70 a tonne in the latest half year, from US$112 a tonne a year earlier. As a result, returns from BHP’s biggest cash machine dipped to 58.3 cents in the dollar (58.3%), down from 63 cents in the first half of 2013-14. Rio’s also slipped, to 63.7 cents from 69.8 cents. It’s still among the most profitable businesses in this country, even in these times of immense price strains. — Glenn Dyer

Or maybe an oil company? This morning’s business media had Caltex Australia, 50% owned by Chevron, on the hunt for takeovers after a surge in profits (and the share price). The company has been cleaning itself up by cutting costs, shedding hundreds of staff (at a cost of more than $112 million, most with long experience and big super payouts) and changing its business model to one where earnings will be more reliable in future years than in the past, when they have buffeted from having two oil refineries. Now there is one left — in Brisbane — and the company plans to make a lot more money out of distributing and selling oil products than making them. The clean-up has the hallmarks of a company being prepared for sale — or rather the 50% owned by Chevron. The company is now very expensive, being worth $9.4 billion, so any purchaser of Chevron’s 50% stake would need a lot of money — more than $5 billion. The company, though, is hostage to its biggest customer, Woolworths, and its hundreds of petrol outlets. But that depends on someone being mad enough to buy half an oil company, although Chevron, like all companies large and small, is cutting spending and wouldn’t mind the cash in these times of sharply lower oil revenues and profits. It also has some difficult decisions to make about spending more on drilling for “tight” oil and gas in Central Australia (next month), and it still has billions to spend (along with its partners) on the Gorgon and Wheatstone LNG export projects offshore WA. Still, the time to swoop on Caltex would have been a year ago, when the Caltex share price was at a low of $19, against the $36.60 at yesterday’s close. — Glenn Dyer

Ethanol boosted petrol on the nose: Yesterday’s Caltex 2014 profit report had some intriguing data about what Australians are buying to put in their cars — lots more diesel and premium petrol, but not so much ethanol-boosted petrol, which continues to suffer from sliding sales. Caltex’s petrol sales fell 1% in volume in a market that was down a little bit more. But premium petrol sales were up 3.6% in 2014, and these petrol types (95 and 98 octane) now represent 29% of the company’s total petrol sales. Unleaded petrol sales volumes were flat, with E10 (unleaded petrol with 10% ethanol) sales down 15% “reflecting diesel and premium petrol substitution and general long-term industry-wide decline”. In other words, fewer drivers want the stuff in their petrol tanks, and that must be starting to hurt Woolies and Coles petrol offers. Caltex said its total sales of diesel were up 5.9% in the year, but retail sales of diesel soared 13.4% thanks to more diesel-powered cars being sold in the past five years. Commercial diesel sales (direct to customers) rose 5% and even sales of diesel to the mining sector rose a solid 3.4% in 2014 in volume terms. — Glenn Dyer

US Treasury notes, bonds rule, OK! All sorts of analysts, inflationistas, fund managers, economists, survivalists, hard money freaks and of course gold and silver bugs (not to mention the Russian government) have been down on the US economy, dollar and government bonds in recent years. The three bouts of quantitative easing from the Federal Reserve were going to spark inflation, bring ruination to the US, boost gold and debase the currency. But at the start of 2014 the warnings about buying US government Treasury securities were based on more practical reasoning — the US bond market was going to sell off because the Fed would be raising interest rates. That didn’t happen, and last year marked one of the biggest bond rallies ever seen. The alarmists didn’t stop the central banks and finance ministries of some of the world’s major economies from parking their money in US government paper — even if the biggest buyer of late, China, allowed its holdings to dip to US$1.244 trillion from US$1.27 trillion. That was the biggest direct holding in the total foreign-owned direct holding of US$6.154 trillion worth of Treasury notes and bonds, up from US$5.793 trillion, according to US Treasury data released last Friday. Japan, the second largest holder of Treasurys, lifted its holdings in 2014 to US$1.231 trillion from US$1.182 trillion (China and Japan combined account for roughly 40% of foreign ownership of US Treasurys). Russia sold US$53 billion in US debt last year, but still held US$86 billion at the end of 2014. US analysts say the interest differentials between US government debt (around 2% for much of last year or higher) and the government bonds of Germany (less than 0.40% for 10-year bonds) and Japan (even less for 10-year bonds) drove the investment. But these are direct holdings and don’t cover stakes held through banks and other buyers on behalf of sovereign clients. — Glenn Dyer

Peter Fray

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