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Wednesday, November 29, 2006

BHP May Be Ready to Start Buying the Smaller Fish

BHP is the world's largest mining company, so what it says carries some weight. Now, BHP is saying that demand for commodities continues to be strong as countries urbanize (that's right along the same lines of the OECD outlook that I wrote about yesterday), and BHP may seek to make acquisitions, especially gold mining companies.

Australian mining stocks are up on the news, but BHP has world-wide reach.

In a story on Bloomberg News Service, CEO Chip Goodyear had some interesting comments...

Demand for commodities continue to be strong, Goodyear said, as countries urbanize. ``Over time, we expect the trend to continue and we see strong support from governments,'' said Goodyear. ``We continue to be quite bullish.''

Demand for iron ore, a steelmaking ingredient, continues to be good, Goodyear said. Demand for coking coal, also used insteelmaking, may be ``softer,'' as China has developed its own supplies faster than expected. Miners are now negotiating with steelmakers to setbenchmark annual prices for 2007.

The Bloomberg piece closes with this: "BHP is spending as much as $13.8 billion on mines andoilfields to meet rising demand from China, the world's fastest-growing major economy. It posted a record $10.45 billion full-year profit in August, and then said it will spend $3 billion buying back shares over 18 months."

Well, sort of. An optimist would say that if a company is buying its own shares, it believes it is undervalued. A pessimist would say that the company obviously can't find better things to spend its money on.

Personally, I look for the small caps to continue outperforming this goliath. BHP is a well-run company and a good stock; I just find better value elsewhere ... especially in stocks that BHP may potentially buy.

So far this year, we've seen $157 billion in mergers and takeovers (including proposals that haven't closed yet) in the mining industry. The way BHP is talking, 2007 could be an EVEN BIGGER year.

Read the Bloomberg story on BHP by CLICKING HERE

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