Equity Research

United Kingdom
European Metals & Mining

September 21, 2009

BHP Billiton plc (BLT.L - 1750p) 2-Equal Weight

Company Update
A shopping spree for BHP?

Investment Conclusion
According to the Wall Street Journal, BHP Billiton

is considering large acquisitions and has identified

"four or five opportunities" to consider within the
next 12 months. The company is apparently most
interested in opportunities in iron ore, copper,
coking coal, potash and petroleum. We agree that
now is a good time for M&A since valuations are
still depressed and the global economy appears to
be improving. However, unconfirmed media
reports of BHP as a potential buyer are likely to
lead to further underperformance for BHP shares
and strong performance for most other miners.

EPS (US$) (FY Jun)

2009

2010

Actual
Year 1.92E
P/E

Old
2.07E

N/A

2011

New
2.07E

St. Est.
1.62E

13.8

N/A

Old
N/A

% Change

New
2.84E

St. Est.
2.18E

2010
8%

2011
37%

10.1

N/A

N/A

N/A

Financial Summary

Market Data

Summary

Market Cap (Mil.)

Based on our analysis, BHP has an opportunity

now to create long-term value via M&A. We would
also not rule out the possibility of a capital return
from BHP when it reports results next February.
While acquisitions on the cheap or accretive
buybacks should ultimately be positive for the
BHP share price, the market is likely to bid prices
of other mining equities higher in the near-term as
media speculation about BHP as a potential buyer
intensifies. We thus maintain our 2-Equal Weight
rating on BHP shares.

Dividend Yield

159350

Revenue TTM (Mil.)

50211.0

3.00

52 Week Range

17.97 - 7.32

Stock Overview
Reuters

BLT.L

Bloomberg

BLT LN

BHP BILLITON PLC - 9/ 1 8/ 20 0 9

ADR

16

12

Stock Rating

Target Price

New: 2-Equal Weight

Old: 2-Equal Weight

New:
Old:

Sector View: 1-Positive

1900p
1900p

8
Volum e
50M
Oct

Nov

Dec

Jan

Feb

Mar

Ap r

May

Jun

Jul

Aug

Sep

Source: Lehm anLive

In the downturn last year, shares of BHP Billiton significantly outperformed shares of all other miners in our coverage as BHP was most
defensively positioned (low-cost producer with a strong balance sheet and safe dividend). Although shares of BHP have
underperformed this year as investors have clearly preferred miners with high financial and operating leverage, shares of BHP have
significantly outperformed shares of most other large miners since the sector peaked in May 2008 (see Figure 1). As a result of BHPs
outperformance over this period, it is possible now that BHP can make acquisitions on the cheap, using cash on hand (BHP has gross
cash of $18bn, according to the Wall Street Journal article cited on page 2), new debt, and/or shares.

Barclays Capital does and seeks to do business with companies covered in its research reports. As a result, investors should
be aware that the firm may have a conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.

PLEASE SEE ANALYST(S) CERTIFICATION(S) ON PAGE 8 AND IMPORTANT DISCLOSURES

BEGINNING ON PAGE 9
1

Equity Research

Figure 1: Share Price Performance

Share price
2008 Peak

(2)(3)

Anglo

BHP

Rio

Vale

Xstrata

Anto

Kaz

Lonmin

Vedanta

FTSE (1)
3479

36.80

21.96

58.47

$43.91

25.02

8.08

19.43

41.51

27.80

(4)

9.14

7.53

8.67

$8.80

2.98

2.61

1.74

5.27

3.88

1782

Peak-to-trough

-75%

-66%

-85%

-80%

-88%

-68%

-91%

-87%

-86%

-49%

20.72

17.50

27.38

$22.06

9.65

7.66

11.24

17.44

20.10

2658

Trough-to-current

127%

133%

216%

151%

224%

194%

547%

231%

418%

49%

Peak-to-current

-44%

-20%

-53%

-50%

-61%

-5%

-42%

-58%

-28%

-24%

Trough
Current

(1)

FTSE All Share Index

Share prices for Anglo, BHP, Rio, Vale, Xstrata, Kaz and Vedanta peaked in May 2008; Anto peaked in Oct 2007, Lonmin in July 2007
(3)
The FTSE All Share Index peaked in June 2007
(4)
Trough prices occurred on 2 Mar 09 for Anglo, 20 Nov 08 for BHP, 5 Dec 08 for Rio, 20 Nov 08 for Vale, 9 Mar 09 for Xstrata, 23 Oct 08 for Anto,
20 Nov 08 for Kaz, 5 Dec 08 for Lonmin, 20 Nov 08 for Vedanta, and 3 Mar 09 for the FTSE
(5)
Anto's and Lonmin's share price peaks shown in this table are from 2007
(2)

Source: Bloomberg, Barclays Capital Equity Research

BHP may put its balance sheet to work

BHPs last acquisition of a producing mining company was in 2005, when it acquired Australias WMC Resources for US$7.3bn. Of
course, the company attempted but eventually walked away from what could have been one of the largest acquisitions in history when it
made an all-stock offer to acquire Rio Tinto near the peak of the cycle last year. In our view, many investors now expect BHP Billiton to
make an acquisition since the company has a strong balance sheet and valuations in the sector are relatively depressed. Comments
this past weekend from BHPs Chief Commercial Officer, Alberto Calderon, should add to the markets speculation that the company is
preparing to make acquisitions in the near-term. According to the Wall Street Journal on 19 Sept 2009 (A Cash-Rich BHP Hunts For
Mergers), Mr Calderon said BHP is ready to put our balance sheet to work, and is generally interested in investment opportunities in
iron ore, copper, coking coal, potash, and petroleum. According to the article, BHP has identified "four or five opportunities", all large
mining, oil or gas companies, or assets in those sectors, more likely in mining. It would expect to make a move within the next 12
months. The article goes on to mention Freeport-McMoRan Copper & Gold, Anglo American, Xstrata, Potash Corp of Saskatchewan,
and even Vale as potential targets for BHP. Other companies that have been mentioned as possible BHP targets in the past include
Woodside Petroleum (BHP and Woodside remain coy on wedding rumor, Dow Jones, 20 July 2009), Alcoa (BHP mulls $57bn Alcoa
bid, The Australian, 16 July 2007), and Mosaic (Talk that BHP is eyeing US-listed Mosaic, Telegraph, 10 July 2009). A summary and
more detailed review of our thoughts on each of these and other companies in our coverage as a potential target for BHP follows.

Figure 2: Possible Acquisition Targets for BHP Billiton

Potential target

Makes strategic sense for BHP to buy?

Why?

Alcoa

Probably not, but some specific Alcoa

assets may fit

Too much downstream and too much of the portfolio is high-cost; limited
synergy potential

Anglo American

Probably not, but some specific Anglo

assets may fit

Anglo Platinum, antitrust in coking coal, undesirable nickel business,

limited synergy potential, integration risk

Freeport

Probably not

Environmental issues at Grasberg (tailings disposal), limited synergy

potential

Vale

No

Brazilian government won't allow

Xstrata

Probably not

Asset quality, undesirable nickel business, Glencore's stake, limited

synergy potential, very high premium required

Woodside

Yes

Allows BHP to expand in petroleum and offers some synergies; very high
premium may be required however, and Shell may not be a seller

Mosaic

Possibly

Potash fundamentals attractive to BHP, possible that Cargill is a seller of its

64% stake, but limited synergy potential

Potash Corp

Possibly

Potash fundamentals attractive to BHP, but limited synergy potential

Antofagasta

Yes

Tier-one copper assets, but Luksic family has not indicated an interest in
selling

Kazakhmys

No

Assets in Kazakhstan and not tier-one

Lonmin

No

BHP has expressed very little interest in platinum mining

Vedanta

No

Assets are in India and mostly downstream or in power generation

Source: Barclays Capital Equity Research

Equity Research
Alcoa
Based on discussions we have had with BHP and recent public comments made by management, it is our view that BHP Billiton wishes
to remain upstream in all businesses and considers aluminium smelting to be a downstream, relatively unattractive, low return business.
Although Alcoa does have an interest in some tier-one bauxite/alumina assets (upstream) through its 60% stake in AWAC, the company
is mostly a downstream smelter and metals processor. In addition, the companys smelters are generally relatively high-cost (whereas
BHPs are near the bottom of the industry cost curve), and its downstream businesses would likely be difficult to separately divest at
prices at or above NPV due to their slow growth, low margins and low returns. In general, we believe an acquisition of Alcoa would
dilute the quality of the BHP Billiton portfolio of assets. With these points in mind, we believe Alcoa is not a good strategic fit for BHP
Billiton, although we suppose there are specific Alcoa assets in bauxite/alumina that might fit in well with BHPs portfolio of assets.
Anglo American
It is possible that Anglo American approached BHP as a potential white knight after Xstrata proposed a nil-premium merger of equals
with Anglo in June 2009 (Xstrata press release, Approach to Anglo American, 21 June 2009). Based on our analysis, Anglo Americans
portfolio includes some tier-one assets that would likely be highly desirable to BHP Billiton (the Los Bronces copper mine, a 44% stake
in the Collahuasi copper mine, a 33% stake in the Cerrejon coal mine, a 63% stake in Kumba Iron Ore, and a 45% stake, through
DeBeers, in the Jwaneng and Orapa diamond mines). However, we believe an acquisition of Anglo American in its entirety does not
make strategic sense for BHP at this time. Consider the following factors:

Platinum business probably not attractive to BHP: BHP should have little interest in acquiring Anglos 80% stake in Anglo
Platinum as this business is highly labour-intensive with serious operating risks and health and safety issues, including a
history of fatalities. BHP is very focused on safety. Anglo Platinum is also a high cost producer. After the recent rally in the
rand, we estimate that the company is only EBITDA break-even at todays platinum price of $1330 per ounce. The value of
Anglo Americans equity stake in Anglo Platinum is equivalent to 42% of Anglo Americans total market capitalisation.
Antitrust in coking coal: A potential BHP/Anglo merger would likely face antitrust issues in coking coal. On a fully
consolidated basis, BHP has a 26.5% market share and Anglo a 6.5% market share in the seaborne coking coal market.
Nickel business probably not attractive to BHP: We believe that BHP does not have a positive view on the outlook for
nickel prices and may consider its own nickel business to be non-core. We are not convinced that BHP would be interested in
Anglos nickel mines, including the companys Barro Alto nickel project in Brazil.
Tarmac probably not attractive to BHP: BHP would probably have very little interest in Tarmac, which is Anglos industrial
minerals business. At this point in the cycle, we believe it would be difficult to divest this business at a price at or above its
NPV.
Minority stakes in quality assets: Anglo only owns minority stakes in some of its highest quality assets (Collahuasi,
Jwaneng and Orapa, for instance). We do not believe BHP has a strong interest in minority stakes in assets, even if those
assets are relatively high quality.
Integration risk may offset synergy potential: We do not see significant synergy potential between BHP and Anglo (outside
of corporate, coal, and some in copper), and we would consider integration risk of a merger between these two companies to
be high.

Based on these factors, we believe that Anglo American is not a strong strategic fit for BHP Billiton. However, some specific Anglo
assets, such as Anglos 33% stake in Cerrejon (BHP already owns a 33% stake in this mine), would probably fit in well with the BHP
Billiton portfolio of assets. Our analysis indicates that Anglo needs to deleverage as its non-South African financial leverage is high and
the company cannot use South African cash flows to repay non-South African debt. Asset sales to BHP could help the company
deleverage and reinstate its dividend.
Freeport-McMoRan Copper & Gold
BHP Billiton is clearly bullish on copper. At the companys marketing briefing on 16 September 2009, management revealed the
companys expectation that Chinese copper consumption would increase by 150% by 2025. Management also indicated that the global
copper market would be in a growing deficit unless new, high-cost, high-risk projects are developed.
BHPs copper business is deteriorating in quality, in our view, as Escondida is struggling with falling grades and declining production,
Pinto Valley has been closed (possibly permanently), Cerro Colorado is depleting, and Olympic Dam has growth that is likely to be
highly capital intensive and high risk. When we consider BHPs positive views about the outlook for copper prices and the companys
own limitations on increasing its exposure to this attractive market, it seems that an acquisition in copper would be most appropriate.
The question, then, is what to buy.
Freeport-McMoRan is one of our top global picks in the mining sector (rated 1-Overweight by Barclays Capital analyst Peter Ward) due
to its high exposure to copper and, on our estimates, relatively inexpensive valuation (9.8x 2010E P/E, 4.3x 2010E EV/EBITDA). One
of Freeports most important assets is the Grasberg mine in Indonesia, which should account for almost half of the companys earnings
this year. Rio Tinto and Freeport have a JV at Grasberg, and after 2021 Rio will own 40% of this mine. In addition to being one of the
worlds largest copper mines, Grasberg is also the worlds largest gold mine and has had negative cash operating costs in recent
quarters due to its high by-product credits from gold. However, mining at Grasberg, which sits on the top of an old volcano, requires the
dumping of tailings in a river. After an environmental disaster at its Ok Tedi mine in Papua New Guinea in 1999, BHP vowed to never
invest in new projects that use riverine tailings disposal. According to the companys 2008 Sustainability Report, We will not commit to
3

Equity Research
a new mining project that disposes of waste rock or tailings into a river or disposes of tailings into a marine environment. The report
then says This does not apply to the disposal of waste rock and tailings materials in conventional waste rock dumps or tailings dams,
which may be constructed within the catchments of a river system where such structures are designed to retain and store the waste
materials. Grasbergs tailings are deposited across a floodplain within a constructed deposition area. While BHP may not
unequivocally rule out operating an asset such as this, we believe the environmental risk (and geopolitical risk) at Grasberg is far too
great for BHP due to its own experience at Ok Tedi a decade ago and its strict focus on environmental stewardship today. While we
cannot rule anything out entirely, we believe an acquisition of Freeport does not make strategic sense for BHP at this time.
Vale
We consider Vales iron ore business to be world class. The company also has a tier-1 nickel business, in our view. However, Vale is
Brazils national champion in mining. Valepar, which is controlled by a pension fund owned by the Brazilian Central Bank, is the
majority owner of Vales common shares. We would argue that it would be nearly impossible for a foreign company to acquire Vale,
and we would rule this out as a target for BHP.
Xstrata
Xstrata is one of our top picks in the mining sector as the company has substantial financial and operating leverage and has high
exposure to our preferred commodities (especially copper and coal, which combined account for approximately 80% of the companys
EBITDA). Furthermore, on our estimates, Xstrata shares are very inexpensive (9.3x 2010E P/E, 5.6x 2010E EV/EBITDA) relative to
shares of most other miners in our coverage. However, we believe that Xstrata has very few assets outside of its world class coal
business that would be attractive to BHP. Consider the following factors:

Copper business is relatively high cost: Most of Xstratas copper assets sit on the top half of the cost curve, based on our
analysis, and are therefore unlikely to meet BHPs definition of tier-one. On the other hand, the company owns stakes in the
high quality Antamina (as does BHP), Alumbrera, and Collahuasi mines, all of which we consider to be relatively high quality.
In addition to these mines, and unlike BHP, Xstrata also has several large copper mine projects (Antapaccay, El Morro, El
Pachon, Freida River, Las Bambas, and Tampakan). These projects are mostly relatively high risk and likely to have high
capital costs but may be somewhat appealing to BHP as the company believes high cost, high risk copper projects will need to
be developed to balance the market.
Nickel business probably not attractive to BHP: We believe that BHP does not have a positive view on the outlook for
nickel prices and may consider its own nickel business to be non-core. We are not convinced that BHP would be interested in
Xstratas nickel mines, including the companys Koniambo nickel project in New Caledonia.
Platinum business probably not attractive to BHP: Although Xstratas platinum business is relatively small, with estimated
total PGM production of 237k ounces in 2009, BHP is probably not interested in this business due to serious operating risks
and health and safety issues in platinum mining. We also do not see any reasonable strategic reason for BHP to own Xstratas
25% stake in Lonmin.
High premium necessary: Despite the strong performance in recent months, Xstratas share price is still 61% below its high
of 2008. In our view, we are in the midst of a synchronized global economic recovery. We would not expect Xstrata to sell
itself at this point in the cycle unless offered a very high premium.
Glencores stake and marketing rights: BHP has its own marketing business and is unlikely to offer marketing rights for any
of its production to Glencore. In this case, Glencore may be very reluctant to sell its 34% stake in Xstrata unless being offered
a very high premium.

Based on these factors, we believe an acquisition of Xstrata does not make strategic sense for BHP at this time. We also do not
believe that Xstrata is interested in divesting stakes in tier-one assets such as its 33% stake in Cerrejon coal or its 44% stake in
Collahuasi copper. It is possible that BHP would be interested in acquiring Xstratas 33.75% stake in Antamina. Again, however, we do
not believe Xstrata is a seller unless the price offered is very high.
Mosaic and Potash Corp of Saskatchewan
BHP Billiton management has recently discussed the companys positive view on the outlook for potash. In some ways, potash is
similar to iron ore in that the industry is highly consolidated and China is a large net importer. BHP currently does not produce any
potash but considers its Jansen potash project to be a potential mega mine. This potential 8m tonne potash mine is unlikely to come
online before 2015 and could cost $10bn to build, based on our estimates. Since BHP is not yet a producer of potash, synergy potential
between BHP and either Mosaic or Potash Corp of Saskatchewan (POT) would likely be limited. We would not expect BHP to acquire
either of these companies at a price that implies a premium that significantly exceeds the present value of the expected synergies to
BHP. On the other hand, an acquisition at a modest premium, if possible, cannot be ruled out. In the case of Mosaic ($24bn market
cap), Cargill owns a 64% stake. If Cargill wishes to monetize this stake, we would not rule out BHP as a potential buyer. In the case of
POT ($29bn market cap), the company has large tier-one assets with significant growth potential in an industry where building new
capacity requires a long ramp-up period and very high capital costs. We believe these would be attractive assets to BHP. Again, the
key question here is probably price.
Woodside Petroleum
At our CEO Energy Conference in NY on 10 September 2009, BHP Petroleum CEO Mike Yeager indicated that the company should
have 10% per year production growth in petroleum over the next two years, but organic growth would be significantly slower after that.
4

Equity Research
Mr Yeager also mentioned the companys desire to get bigger in petroleum beyond what its current organic growth pipeline should
deliver and discussed possibly using M&A to achieve this goal. In our opinion, BHP is very positive on the outlook for oil and wishes to
become a larger player in this industry. We believe BHPs Petroleum business is the reason why the entire company generates higher
returns and higher EBIT margins than its peers.
According to BHP Billiton (Proposed DLC Merger Circular to Shareholders, April 2001), the company had discussions with Woodside
Petroleum in 2001 regarding a potential merger or other cooperation between the two companies. Since then, Woodside has often
been mentioned as a potential target for BHP as the companies would probably have significant synergies and BHP has clearly
indicated interest in this combination in the past. In addition, an acquisition of Woodside ($31bn market cap) would be large enough
that it would arguably be transformational to BHPs petroleum business. When we consider BHPs positive view on the outlook for
energy prices, the fact that BHP and Woodside have discussed a possible combination in the past, the synergy potential between these
two companies, and the size of Woodside, we believe that an acquisition of Woodside by BHP would be strategically sensible. One
caveat to this is that Shell owns a 34% stake in Woodside and may not be a seller unless offered a very high premium. Perhaps the
biggest hurdle to a BHP acquisition of Woodside would be price. We would not expect BHP to pursue what would clearly be a dilutive
and value-destructive acquisition.
Other companies in our coverage
Antofagasta
Based on our analysis, Antofagastas Los Pelambres mine is clearly a tier-one copper mine. Furthermore, this company is somewhat
unique in that it actually has near-term, low-risk, low-cost growth in copper mining (the Los Pelambres expansion and the Esperanza
greenfield mine). We believe an acquisition of Antofagasta would be strategically sensible for BHP, but we are not convinced that the
Luksic family, which owns 65% of the company, are sellers unless offered a very high premium.
Kazakhmys
Although Kazakhmys is a relatively large copper producer, the companys assets are all located in Kazakhstan (not in BHPs backyard)
and are generally mature with rising costs and limited growth potential. We do not consider these to be tier-one assets, and we
therefore do not believe Kazakhmys is a strategically sensible acquisition target for BHP Billiton.
Lonmin
As we have discussed, BHP has indicated very little interest in platinum mining. We therefore do not believe Lonmin is a strategically
sensible acquisition target for BHP Billiton.
Vedanta
We believe that Vedanta has tier-one assets. However, most of Vedantas assets are downstream and in power generation.
Furthermore, most of Vedantas assets are in India. BHP has said it prefers to seek opportunities in its own backyard. BHP currently
has no operating assets in India. With these points in mind, we do not believe Vedanta is a strategically sensible acquisition target for
BHP Billiton.

Equity Research

Figure 3: Comparable Valuations

20-Sep-2009

Sector Rating: Positive

Company

Stock Rating:

Current

Target

Potential

Price

Price

Upside

Rio Tinto

1-Overweight

27.38

34.00

Vedanta

1-Overweight

20.10

Xstrata

1-Overweight

Anglo American

P/E

EV/EBITDA

2008

2009E

NPV

P/NPV

WACC

24%

6.8

17.2

9.7

5.6

9.0

6.2

30.47

0.90

10.5%

24.00

19%

17.6

25.4

10.6

10.6

13.9

7.7

17.21

1.17

12.0%

9.65

15.00

55%

5.7

17.1

9.3

6.3

9.4

5.6

13.42

0.72

12.0%

2-Equal Weight

20.72

24.00

16%

7.8

16.4

11.7

5.3

10.1

7.6

16.34

1.27

10.0%

BHP Billiton

2-Equal Weight

17.50

19.00

9%

10.3

15.3

11.6

5.4

8.7

6.4

18.06

0.97

9.5%

Kazakhmys

2-Equal Weight

11.24

11.00

-2%

9.9

18.6

6.9

5.2

7.8

4.0

9.34

1.20

12.5%

Vale

2-Equal Weight

$22.06

$23.00

4%

8.6

20.5

16.9

6.0

11.8

10.0

$17.42

1.27

10.5%

Antofagasta

3-Underweight

7.66

7.50

-2%

14.6

16.9

9.3

7.6

10.7

5.7

5.55

1.38

12.0%

Lonmin

3-Underweight

17.44

14.00

-20%

7.8

(38.7)

92.3

5.4

(150.7)

23.9

8.75

1.99

10.0%

15%

8.9

17.5

12.2

5.8

7.2

N/A

1.05

10.5%

Weighted average

2010E

2008

2009E

9.8

2010E

In weighted average, weights are based on market capitalizations, excluding Lonmin

All estimates are based on calendar year even though BHP Billiton, Lonmin and Vedanta report on a fiscal year different from the calendar year
EV/EBITDA multiples are based on attributable rather than consolidated numbers

Source: Bloomberg, Barclays Capital Equity Research estimates

Target Price Valuation Methodology

Rio Tinto: Our 34.00 price target is based on our NPV estimate (assuming WACC of 10.5%) and implies a price 12.6x our 2010
EPS estimate of $4.59.

Vedanta: Our 24.00 price target based on our NPV estimate (assuming WACC of 12%) and implies a price 13.1x our calendar
2010 EPS estimate of $3.10.

Xstrata: Our 15.00 price target is based on our NPV estimate (assuming WACC of 12%) and implies a price 15x our calendar
2010 EPS estimate of $1.69.

Anglo American: Our 24.00 price target is based on our NPV estimate (assuming WACC of 10%) and implies a price 14x our 2010
EPS estimate of $2.90.

BHP Billiton: Our 19.00 price target is based on our NPV estimate (assuming WACC of 9.5%) and implies a price 12.6x our
calendar 2010 EPS estimate of $2.46.

Kazakhmys: Our 11.00 price target is based on our NPV estimate (assuming WACC of 12.5%) and implies a price 7x our 2010
EPS estimate of $2.67.

Vale: Our $23.00 price target is based on our NPV estimate (assuming WACC of 10.5%) and implies a price 17.7x our 2010 EPS
estimate of $1.30.

Antofagasta: Our 7.50 price target is based on our NPV estimate (assuming WACC of 12%) and implies a price 9.5x our 2010
EPS estimate of $1.35.

Lonmin: Our 14.00 price target is based on our NPV estimate (assuming WACC of 10%) and implies a price 77x our calendar
2010 EPS estimate of $0.31.

Equity Research
BHP Billiton (BLT LN) Summary Sheet
September 20, 2009
Price (pence)
Rating
Price Target (pence)
NPV per share (pence)
Analyst

1750p
2-Equalweight
1900p
1877p
Chris LaFemina, CFA

Diluted Shares (millions)

2009
Market capitalization ( millions)
Market capitalization ($ millions)
Financial Summary ($ mm) (FYE 30 June)
Cash
2009
ST Debt
2009
LT Debt
2009
Preferred Shares
2009
Equity
2009
Debt / Capital
2009
Net EV/EBITDA
2010E
P/E
2010E
Dividend/Share (US$)
2010E
Dividend Yield
2010E
In the FTSE 100?

5,586
97,761
$159,350
10,833
1,094
15,325
0
39,954
29%
7.4x
13.8x
$0.86
3.0%
Yes

Operating & Financial Data (FYE 30 June)

Earnings per Share (US$)
P/E on plc shares
Underlying EBITDA ($ millions)
Net EV/EBITDA (Underlying)
Dividend per Share (US$)
Dividend Yield on plc shares
Net Debt (Cash) ($ millions)

2400p

1800p

1200p

600p

0p
Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

2004
0.56
50.8x
7,506
24.4x
0.26
0.9%
5,274

2005
1.04
27.3x
12,016
15.5x
0.28
1.0%
10,000

2006
1.72
16.5x
18,053
10.1x
0.36
1.3%
9,200

2007
2.29
12.5x
22,950
7.7x
0.47
1.6%
10,173

2008
2.75
10.4x
28,031
6.0x
0.70
2.5%
8,458

2009
1.92
14.9x
22,275
7.4x
0.82
2.9%
5,586

2010E
2.07
13.8x
21,964
7.4x
0.86
3.0%
2,312

2011E
2.84
10.1x
28,517
5.3x
0.90
3.2%
-7,379

2012E
3.51
8.1x
33,969
4.0x
0.94
3.3%
-23,483

2013E
3.65
7.8x
34,419
3.5x
0.98
3.4%
-40,396

Petroleum

1,989

3,020

3,795

3,790

6,657

5,456

5,363

7,066

9,321

10,889

Aluminum

1,010

1,211

1,507

2,139

1,775

476

170

266

494

586

Base Metals
Escondida
Spence
Other South America
Cannington
Olympic Dam
Other

1,470
918
0
414
193
0
-55

2,487
1,466
0
738
353
27
-97

5,972
3,389
0
1,450
491
741
-99

7,448
4,441
432
1,333
628
837
-223

8,657
5,136
939
1,577
880
708
-583

1,994
777
508
522
310
316
-439

5,880
2,978
965
1,003
351
717
-134

7,402
4,066
1,153
1,063
381
892
-153

7,377
4,125
1,109
1,015
406
874
-151

6,286
3,499
932
845
431
716
-137

Carbon Steel Materials

Iron Ore
Metallurgical Coal
Manganese
Other

1,390
815
404
214
-43

3,132
1,602
1,042
612
-124

4,881
2,710
2,042
177
-48

4,748
2,948
1,507
291
2

7,863
4,962
1,209
1,692
0

13,016
6,631
4,988
1,406
-9

8,340
5,695
2,211
435
0

11,204
6,269
4,469
466
0

13,711
7,815
5,318
579
0

13,015
8,204
4,303
509
0

Diamonds and Specialty Products

Diamonds
Specialty Products

627
502
125

757
622
135

462
288
174

315
211
104

364
224
140

370
253
117

259
219
40

272
230
42

285
242
44

298
253
46

Energy Coal
Ingwe (South Africa)
New Mexico (USA)
Hunter Valley (Australia)
Cerrejon (Colombia)
Other

525
195
123
58
148
1

819
290
123
128
236
42

610
190
118
55
229
18

771
212
114
116
246
83

1,326
659
118
471
283
-205

1,676
317
118
458
462
321

1,269
177
211
313
557
10

1,453
240
220
365
617
10

1,644
249
209
410
766
10

1,774
243
216
390
915
10

Stainless Steel Materials

Nickel and Cobalt
Other

676
526
150

853
689
164

1,144
1,084
60

3,950
4,006
-56

1,739
1,739
0

-415
-466
51

733
733
0

955
955
0

1,238
1,238
0

1,670
1,670
0

Underlying EBITDA by Customer Sector Group ($ millions)

Group and Unallocated Items

BHP Billiton Group

-181

-263

-318

-211

-350

-298

-50

-100

-100

-100

7,506

12,016

18,053

22,950

28,031

22,275

21,964

28,517

33,969

34,419

Valuation
Our 1900 pence target price is based on our NPV estimate and implies a P/E of 12.6x our CY2010 EPS estimate of $2.46.
Growth Prospects
BHP Billiton has industry-leading growth potential in iron ore, coking coal, and petroleum, based on our analysis. We believe BHP Billiton is in a somewhat unusual position of
having the financial capacity to bring online its growth or to make accretive acquisitions during the current downturn.
Balance Sheet
Despite a long track record of acquisitions and organic growth expenditures, BHP Billiton has one of the industry's best balance sheets, in our view. We expect strong free cash
flow for BHP to be used to fund organic growth opportunities, pay down debt, and repurchase shares in the years ahead.
Investment Summary
In our opinion, BHP Billiton's management of its portfolio of mining and oil & gas assets is very good. BHP Billiton is a natural resource producer that pursues business
opportunities where returns are likely to exceed a risk-adjusted cost of capital. However, despite BHP being such a high quality mining company, we do not expect BHP shares to
outperform the sector over a 6-12 month horizon.
Note that data above is for fiscal year ending 30 June
Source: Company data, Barclays Capital estimates

Equity Research

Analyst Certification:
I, Christopher LaFemina, CFA, hereby certify (1) that the views expressed in this research report accurately reflect my personal views
about any or all of the subject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will
be directly or indirectly related to the specific recommendations or views expressed in this research report.

Company Description:
BHP Billiton is the world's largest diversified mining company. BHP produces iron ore, coal, aluminium, nickel, zinc, diamonds, and
various other metals and bulk commodities. BHP is also the only mining company that produces oil.

Equity Research
On September 20, 2008, Barclays Capital acquired Lehman Brothers' North American investment banking, capital markets, and private
investment management businesses. All ratings and price targets prior to the acquisition date relate to coverage under Lehman Brothers Inc.

Important Disclosures:
BHP Billiton plc (BLT.L)

1750p (18-Sep-2009)

2-Equal Weight / 1-Positive

Rating and Price Target Chart:

Currency=STG
Date
Closing Price
23-Apr-08
1927.00
20-Feb-08
1613.00
12-Oct-07
1878.00

Rating

Price Target
2600.00
2100.00
2000.00

Date
13-Jul-07
20-Jun-07

Closing Price
1527.00
1384.00

Rating

Price Target
1800.00
1550.00

FOR EXPLANATIONS OF RATINGS REFER TO THE STOCK RATING KEYS LOCATED ON THE PAGE FOLLOWING THE LAST PRICE CHART.

Barclays Capital and/or Lehman Brothers Inc. and/or one of their affiliates has managed or co-managed within the past 12 months a
144A and/or public offering of securities for BHP Billiton plc.
Barclays Capital and/or one of their affiliates beneficially owns 1% or more of any class of common equity securities of BHP Billiton plc.
Barclays Capital and/or an affiliate trade regularly in the shares of BHP Billiton plc.
BHP Billiton plc is or during the past 12 months has been an investment banking client of Barclays Capital and/or Lehman Brothers Inc.
and/or one of their affiliates.
Valuation Methodology: Our 19.00 target price for BHP Billiton shares is based on our NPV estimate and implies a price 12.6x our
CY2010E EPS estimate of $2.46.
Risks Which May Impede the Achievement of the Price Target: BHP Billiton is a globally diversified miner with high leverage to
commodity prices. If commodity prices are lower than we expect for a sustained period, there is risk that our BHP target price is not
achievable.

Equity Research

Important Disclosures Continued:

Freeport-McMoRan C&G (FCX)

US$ 70.14 (18-Sep-2009)

1-Overweight / 1-Positive

Rating and Price Target Chart:

Currency=US$
Date
Closing Price
12-Jun-09
58.51
22-Apr-09
40.45
26-Jan-09
24.94
26-Nov-08
25.33
14-Oct-08
40.94
12-Sep-08
73.88
22-Apr-08
118.65

Rating

Price Target
85.00
65.00
60.00
75.00
100.00
181.00
200.00

Date
24-Oct-07
26-Jul-07
10-Apr-07
16-Jan-07
28-Nov-06
28-Nov-06

Closing Price
111.84
89.74
70.46
53.40
60.80
60.80

Rating

Price Target
130.00
125.00
100.00
80.00
85.00

1 -Overweight

FOR EXPLANATIONS OF RATINGS REFER TO THE STOCK RATING KEYS LOCATED ON THE PAGE FOLLOWING THE LAST PRICE CHART.

Barclays Capital and/or an affiliate makes a market or provides liquidity in the securities of Freeport-McMoRan C&G.
Barclays Capital and/or an affiliate expects to receive or intends to seek compensation for investment banking services from FreeportMcMoRan C&G within the next 3 months.
Barclays Capital and/or an affiliate trade regularly in the shares of Freeport-McMoRan C&G.
Freeport-McMoRan C&G is or during the past 12 months has been an investment banking client of Barclays Capital and/or Lehman
Brothers Inc. and/or one of their affiliates.
Barclays Capital is associated with specialist firm Barclays Capital Market Makers who makes a market in Freeport-McMoRan C&G
stock. At any given time, the associated specialist may have "long" or "short" inventory position in the stock; and the associated
specialist may be on the opposite side of orders executed on the Floor of the Exchange in the stock. Barclays Capital and/or an affiliate
makes a market in the securities of this company.
Risks Which May Impede the Achievement of the Price Target: Our long-term copper price forecast is $3.00 per pound. Copper
price performance that is better/worse than our assumptions would favorably/negatively impact our rating and estimate.

10

Equity Research

Important Disclosures Continued:

Xstrata plc (XTA.L)

965p (18-Sep-2009)

1-Overweight / 1-Positive

Rating and Price Target Chart:

Currency=STG
Date
Closing Price
23-Apr-08
4101.00
27-Mar-08
3568.00
24-Jan-08
3393.00
11-Dec-07
3738.00
12-Oct-07
3586.00
08-Aug-07
2872.00

Rating

Price Target
6000.00

Date
13-Jul-07
11-Apr-07
09-Mar-07
17-Oct-06
31-Aug-06
05-Jun-06

1 -Overweight
RS -Rating Suspended
4300.00
4000.00
3700.00

Closing Price
3422.00
2779.00
2405.00
2130.00
2110.57
1842.05

Rating

Price Target
4000.00
3300.00
3100.00
2900.00
3000.00

1 -Overweight

FOR EXPLANATIONS OF RATINGS REFER TO THE STOCK RATING KEYS LOCATED ON THE PAGE FOLLOWING THE LAST PRICE CHART.

Barclays Capital and/or Lehman Brothers Inc. and/or one of their affiliates has managed or co-managed within the past 12 months a
144A and/or public offering of securities for Xstrata plc.
Barclays Capital and/or Lehman Brothers Inc. and/or one of their affiliates has received compensation for investment banking services
from Xstrata plc in the past 12 months.
Barclays Capital and/or an affiliate trade regularly in the shares of Xstrata plc.
Barclays Capital and/or Lehman Brothers Inc. and/or one of their affiliates has received non-investment banking related compensation
from Xstrata plc within the last 12 months.
Xstrata plc is or during the past 12 months has been an investment banking client of Barclays Capital and/or Lehman Brothers Inc.
and/or one of their affiliates.
Xstrata plc is or during the last 12 months has been a non-investment banking client (securities related services) of Barclays Capital
and/or Lehman Brothers Inc. and/or one of their affiliates.
Risks Which May Impede the Achievement of the Price Target: Xstrata has high operating risk in its copper business and very high
financial leverage. A longer than expected downturn in the commodity markets would likely be a significant negative for the company,
and in this case, Xstrata shares would likely underperform.

11

Equity Research
Important Disclosures Continued:
The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total
revenues, a portion of which is generated by investment banking activities.

Company Name
BHP Billiton plc

Ticker
BLT.L

Price
1750p

Price Date
18-Sep-2009

Stock / Sector Rating

2-Equal Weight / 1-Positive

Mentioned Company
Freeport-McMoRan C&G
Xstrata plc

Ticker
FCX
XTA.L

Price
US$ 70.14
965p

Price Date
18 Sep 2009
18 Sep 2009

Stock / Sector Rating

1-Overweight / 1-Positive
1-Overweight / 1-Positive

Other Material Conflicts

Barclays Capital is acting as financial advisor to ASARCO LLC in the potential acquisition by Vedanta Resources' subsidiary, Sterlite
Industries. The estimates for Vedanta Resources do not incorporate the potential transaction.

Guide to the Barclays Capital Fundamental Equity Research Rating System:

Our coverage analysts use a relative rating system in which they rate stocks as 1-Overweight, 2-Equal Weight or 3-Underweight (see
definitions below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry
sector (the sector coverage universe). Below is the list of companies that constitute the sector coverage universe:
Anglo American plc (AAL.L)
BHP Billiton plc (BLT.L)
Lonmin (LMI.L)
Vale (VALE)
Xstrata plc (XTA.L)

Antofagasta plc (ANTO.L)

Kazakhmys (KAZ.L)
Rio Tinto (RIO.L)
Vedanta Resources plc (VED.L)

In addition to the stock rating, we provide sector views which rate the outlook for the sector coverage universe as 1-Positive, 2-Neutral
or
3-Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system.
Investors should carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings
alone.
Stock Rating
1-Overweight - The stock is expected to outperform the unweighted expected total return of the sector coverage universe over a 12month investment horizon.
2-Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the sector coverage universe
over a 12- month investment horizon.
3-Underweight - The stock is expected to underperform the unweighted expected total return of the sector coverage universe over a
12- month investment horizon.
RS-Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage
impracticable or to comply with applicable regulations and/or firm policies in certain circumstances including when Barclays Capital is
acting in an advisory capacity in a merger or strategic transaction involving the company.
Sector View
1-Positive - sector coverage universe fundamentals/valuations are improving.
2-Neutral - sector coverage universe fundamentals/valuations are steady, neither improving nor deteriorating.
3-Negative - sector coverage universe fundamentals/valuations are deteriorating.
Distribution of Ratings:
Barclays Capital Equity Research has 1250 companies under coverage.
39% have been assigned a 1-Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating;
44% of companies with this rating are investment banking clients of the Firm.
45% have been assigned a 2-Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold
rating; 39% of companies with this rating are investment banking clients of the Firm.

12

Equity Research
14% have been assigned a 3-Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating;
28% of companies with this rating are investment banking clients of the Firm.
Barclays Capital offices involved in the production of Equity Research:
London
Barclays Capital, the investment banking division of Barclays Bank Plc (Barclays Capital, London)
New York
Barclays Capital Inc. (BCI, New York)
Tokyo
Barclays Capital Japan Limited (BCJL, Tokyo)
So Paulo
Banco Barclays S.A. (BBSA, So Paulo)
This publication has been prepared by Barclays Capital; the investment banking division of Barclays Bank PLC, and/or one or more of its affiliates as
provided below. This publication is provided to you for information purposes only. Prices shown in this publication are indicative and Barclays Capital is
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contained in this publication has been obtained from sources that Barclays Capital believes to be reliable, but Barclays Capital does not represent or
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The analyst recommendations in this report reflect solely and exclusively those of the author(s), and such opinions were prepared independently of any
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13