In my search for companies to stash away in an ISA and forget for a couple of decades, why would I even consider such a cyclical industry as mining — especially after the last few years of tough times and low commodities prices?
Looking at BHP Billiton (LSE: BLT) (NYSE: BBL.US), three out of the past five years have seen earnings falling. And the share price really hasn’t done much during the recession either. Over the past year it has dropped 15%, and over five years the picture isn’t much better — the BLT price is up around 30%, but the FTSE 100 has trounced it with a 70% gain.
What about 10 years?
But that really makes no difference to people who want to use their new ISA allowance of £11,760 as a basis of a decades-long plan to secure a comfortable retirement. Here’s what the BHP price looks like over 10 years:
The cyclical ups and downs are clear, but the only two prices that matter are the start and end prices, and the reason BHP Billiton is likely to carry on doing well in the long term is that the things it unearths and sells are simply not going to go out of fashion.
Valuable dirt
In 2012, the company made half of its profits from iron ore, and there really is no substitute for that — BHP produced 97.8 million tonnes of the stuff in just the six months to December 2013.
A big chunk also came from petroleum, with the half year seeing the production of 120 million barrels of oil equivalent, and demand for that is going to be steady for decades to come.
And then there’s copper (843,000 tonnes), coal (50m tonnes), and aluminium, manganese, nickel…
Muck into brass
In financial terms, those production levels coupled with efficiency improvements led to a 15% rise in underlying EBIT for the six-month period, to $12.4bn, with a 65% increase in net operating cash flow — prompting chief executive Andrew Mackenzie to enthuse over the company’s “sustainable increase in productivity“.
So, a 20-year time frame? You could do worse than investing in dirt.