According to analysts mining titans BHP Billiton and Rio Tinto are to generate about USD 20 billion in free cash flow this calendar year giving each substantial options for acquisitions and capital management.
Even given their aggressive combined USD 155 billion expansion in CAPEX in the next five years, Merrill Lynch analyst Mr Peter O'Connor said their significant cash flow from buoyant commodity prices and delivery of growth projects could drive additional capital management plans and mergers and acquisitions.
He said that both also have cash rich balance sheets. He added that "Rio and BHP are poised to generate significant free cash flow over the next three to five years about USD 20 billion in 2011 earnings alone. With continued strong cash flow generation for both companies, we believe the potential exists for additional capital management plans and M&A firepower even given the aggressive expansionary CAPEX growth."
BHP is within inches of completing a USD 10 billion share buyback, while Rio is about halfway through its similar USD 5 billion buyback. Both are expected to review further capital management every six months.
Rio which recently wrapped up its USD 3.9 billion acquisition of Mozambique coking coal miner Riversdale Mining has suggested it would continue its prudent approach to M&A with a focus on low-to-mid single digit billion dollar bolt-on deals.
BHP the world biggest diversified miner has indicated a desire to grow its petroleum business which Mr O'Connor said appeared logical given the high returns and limited risk with anti-trust concerns. The miner this year spent USD 4.75 billion on Chesapeake Energy Arkansas shale gas assets.
He said that "In the absence of 'transformational' M&A, we expect additional buybacks and dividends."
Separately analysts largely brushed off BHP USD 1.1 billion CAPEX blowout for the expansion of its Worsley Alumina refinery in Western Australia, announced on Friday. But they warned that it could be a sign of things to come in the mining industry given the skills shortage and increase in costs.
(Sourced from www.theaustralian.com.au)
