The silver lining to losing out on Potash

 
Marion Dakers
THIS time last year, BHP Billiton shareholders were struggling to understand the mining giant’s rationale behind bidding $40bn (£24.3bn) for a fertiliser company.

Investors were left aghast after the firm became embroiled in an ugly, and ultimately unsuccessful, hostile bid for Potash Corp that cost them $350m in advisory fees alone.

After they raised concerns about chief executive Marius Kloppers’ strategy, the firm swore off big acquisitions and bought back shares.

A year later, potash almost forgotten, BHP Billiton has been pouring money into existing assets like the lucrative Escondida copper mine, as well as splashing out on somewhat smaller purchases, like the $12.1bn deal for shale gas firm Petrohawk.

The firm has bet that shale gas, in coming decades, will deliver comparable gains to its other prize assets.

BHP’s full-year results on Wednesday are expected to break UK corporate records with an attributable profit of a staggering $22.1bn, fuelled by the surge in prices for base metals, iron ore, petroleum and coal.

Iron ore, which makes up about a third of the firm’s profits, has seen its value more than double over 12 months (potash, incidentally, has seen its value rise just 24 per cent).

BHP has been more resilient than most of its commodity-led peers during the recent market turbulence – losing a relatively paltry 18.6 per cent from its market cap in August, compared with Rio Tinto’s 19.8 per cent and a 26 per cent fall at Glencore.

The balance sheet that burned a hole in Kloppers’ pockets last year has protected the firm from this turbulence, and paid for projects to generate returns over the long term.