Is BHP Billiton a good stock to buy? BNP Paribas has downgraded BHP Billiton Limited (ADR) (NYSE:BHP) from “neutral” to “underperform” in Tuesday’s research report sent to clients and investors (that an online portal has leaked). On the other hand, Zacks has gone the opposite direction stating a “neutral” recommendation based on a large number of ready-to-be-launched products and reduced cash cost controls amid declining commodity prices, lower iron, coking, and thermal coal sales. Lower earnings and labor crises have also been pointed out as risks by the investment research firm. Hence, opinions over present performance remain divided, while forward outlook remains troubled.
Another note for BHP Billiton is Papua New Guinea’s decision to take control of the Ok Tedi copper and gold mine. Additionally, the company has been stripped of immunity over environmental damage in relation to the 1990’s waterways pollution scandal.
Far from being bad, the company has been able to exit what considered an unprofitable business, while at the same time avoiding prosecution for environmental damage. The downside to the operation is the firm will not receive full payment. But, the discount remains generous when put into perspective, since the firm will avoid a legal rumble that will certainly bring much unwanted publicity.
Government sat its eyes on the project, as BHP Billiton considered closing the mine, while representing a great profit opportunity for the current administration. Hence, all activities at Congress were halted yesterday to treat the Prime Minister’s proposal. Profitability for the company stood at low levels, because management signed a deal in 2001 with government officials to divest its majority shares into a charitable trust called PNG Sustainable Development Program.
Mr. O’Neill said “This proposed bill now removes that waiver for BHP Billiton, meaning that the land owners or any other affected party are free to bring any action or enforce any right.” In other words, the Prime Minister is opening the door to Papua New Guinean citizens, affected by BHP Billiton’s actions, to sue the firm for damages. The catch-22 is that the company will exit the country, and possibility for any legal claim will be shorthanded, while the new operator will continue to exploit the mine.
Disclosure: Jodor Jalit holds no position in any of the mentioned stocks.