BlackRock Inc. (BLK:US)’s Catherine Raw, who helps manage the $14 billion World Mining Fund, trimmed holdings in BHP Billiton Ltd. (BHP) following concerns the company’s Olympic Dam project and shale gas assets may curb returns.
“Some of the decisions they are making are very good in terms of long term strategy but are you going to make money from it in the next three years, which is our investment horizon?” Raw, a fund manager at BlackRock, said yesterday in Hong Kong. “I struggle to understand how they are going to do that.”
BHP, the biggest mining company, hasn’t decided whether to expand the Olympic Dam uranium-copper-gold mine in South Australia at a cost Deutsche Bank AG estimated in October at $27.4 billion. It spent $16.9 billion in 2011 on shale gas, buying Petrohawk Energy Corp. (HK:US) of the U.S. and assets from Chesapeake Energy Corp. (CHK:US)
“They need to clearly indicate to the market what their strategy around Olympic Dam is, around shale gas is, all of these things, to return confidence that they are not spending huge amounts of capex for very low returns,” Raw said. “Which at the moment is the perception in the market and one of the reasons why we don’t need to be having such a large position.”
“That’s our fear,” she said. “It was a fear really that came in immediately after the shale acquisition.”
Shares of Melbourne-based BHP represent about 6.5 percent of the World Mining Fund, down from about 9 percent to 10 percent before, Raw said. “For us that’s quite a big shift out of BHP,” she said.
BlackRock is the largest shareholder of BHP’s Australian stock, with 5.7 percent, according to data Bloomberg compiled. It controls 10 percent of BHP’s London stock, the data show. The fund is also the largest shareholder of Rio Tinto Group (RIO)’s Australian stock, with 5.8 percent, and 9.1 percent of the company’s London stock, according to Bloomberg data.
Rio Tinto, the world’s third-largest mining company and second-biggest iron ore exporter, offers better returns on investment in the near-term as it expands existing mines rather than building export capacity and has greater exposure to iron ore and copper, Raw said.
London-based Rio got 78 percent of its net income from iron ore in 2011 and 12 percent from copper, according to data compiled by Bloomberg. BHP got 41 percent of its operating income from iron ore in the year ending June 30, 2011 and its base metals group, which includes copper, silver, zinc, uranium and lead, contributed 21 percent.
“Rio’s development pipeline actually looks more interesting because it’s in the right commodities and it’s relatively low cost compared to the industry as a whole,” she said. “That’s why we maintain overweight in Rio.”
BHP dropped 1 percent to A$34.25 at the close of trading in Sydney. Rio Tinto fell 0.3 percent to A$64.36.
Ruban Yogarajah, a London-based spokesman for BHP, declined to comment and referred to remarks from Chief Executive Officer Marius Kloppers on a conference call with reporters on Feb. 8.
“We are going to continue to invest through the cycle,” Kloppers said on the call. The company will continue to “live within our means, which means we are only going to invest the cash flow that we generate out of our base assets over time.”
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