Imagine you're building a house. You need steel for the frame, copper for the wiring, and coal to power the factory that makes your windows. Where does all that stuff come from? It comes out of the ground. Companies that dig it up are called miners, and Billiton was one of the biggest and most important miners on the planet.
Think of Billiton (and its modern form, BHP) as a colossal global farmer. But instead of growing wheat or corn, its “farms” are massive mines scattered across continents, and its “crops” are the raw materials that fuel global industry. Its main products include:
Iron Ore: The key ingredient for making steel. No iron ore, no skyscrapers, no cars, no bridges.
Copper: The metal of electrification. It's essential for everything from electrical wiring and plumbing to electric vehicles and wind turbines.
Coal: Both metallurgical coal (used for steelmaking) and thermal coal (for energy), though many large miners are shifting away from the latter.
Other Minerals: Depending on the time, their portfolio has included nickel (for batteries), potash (for fertilizer), uranium, oil, and gas.
The name “Billiton PLC” refers specifically to the British-listed arm of the company after it merged with Australia's Broken Hill Proprietary Company (BHP) in 2001. For two decades, they operated under a complex “dual-listed” structure as BHP Billiton. You had BHP Billiton Limited in Australia and BHP Billiton Plc in the UK—same company, same management, just two different stock listings. In 2022, they simplified everything, collapsing the structure into a single Australian-listed company: BHP Group.
So, while you can't invest in “Billiton PLC” today, its legacy, business model, and assets are the core of what BHP is. When we analyze Billiton, we are really analyzing the timeless business of being a diversified mining supermajor. It's a business of immense scale, enormous upfront costs, and a fate tied directly to the unpredictable tides of the global economy.
“In the cyclical business, the secret is to buy them when they are going down, on the way down, and you have to have the stomach to do it. You are going to lose money for a while. And then the secret is to sell them when they are going up, when they are doing very well.” - Peter Lynch
For a value investor, a company like Billiton/BHP is a fascinating and often terrifying beast. It's the polar opposite of a steady, predictable business like Coca-Cola. Its profits can swing wildly from one year to the next, not because of management failure, but because the price of copper or iron ore doubled or halved. This volatility scares many investors away, which is precisely why it creates opportunities for the disciplined value investor.
Here's why it's a critical company to understand:
The Ultimate Cyclical Play: Mining is the textbook definition of a
cyclical_stock. When the global economy is booming, demand for raw materials soars, prices skyrocket, and companies like BHP mint money. When recession hits, demand collapses, prices crash, and profits can evaporate. A value investor understands this cycle. They don't try to predict it, but they respect it. The goal is to buy near the bottom of the cycle, when fear is rampant and the stock looks “expensive” on depressed earnings, and to be wary at the top, when profits are huge and the stock looks “cheap.”
A Moat Dug from the Earth: Warren Buffett loves businesses with a durable competitive advantage, or an
economic_moat. A miner's moat isn't a brand or a patent; it's geology. BHP owns world-class, low-cost, long-life assets. These are mines with such high-quality ore and efficient infrastructure that they can remain profitable even when commodity prices are low. A high-cost competitor might go bankrupt in a downturn, but a low-cost leader like BHP survives to reap the rewards in the next upswing. Their scale and low costs are their fortress.
Tangible intrinsic_value: Unlike a software company whose value lies in code and future growth stories, a miner's value is rooted in something real: billions of tons of proven reserves in the ground. While estimating that value is complex, it provides a tangible anchor that is appealing to a classic value investor in the mold of Benjamin Graham. You are buying a claim on real, hard assets.
A Masterclass in capital_allocation: A mining company is a giant cash machine during the good times. What management does with that cash is paramount. Do they wisely reinvest it in high-return projects? Do they overpay for acquisitions at the top of the cycle (a common industry sin)? Or do they return it to shareholders via dividends and buybacks? For a value investor, studying management's capital allocation decisions over a full cycle is more important than looking at a single year's earnings.
Inflation Hedge: In an inflationary environment, the price of “stuff” goes up. As a producer of the most basic stuff there is, a diversified miner can be a powerful hedge against rising inflation, as the value of their products increases.
Let's compare two investors looking at “Global Mining Corp” (our stand-in for BHP).
Investor A: The Momentum Chaser. It's 2021. The global economy is roaring back from the pandemic. Iron ore prices hit a record high. Global Mining Corp posts record profits, and its P/E ratio is a mere 6x. It looks incredibly cheap! The dividend yield is a juicy 9%. Investor A buys shares, feeling brilliant. A year later, fears of a global recession send iron ore prices tumbling. Global Mining Corp's profits are slashed in half, and the stock price falls 40%. The “cheap” stock got a lot cheaper.
Investor B: The Value Investor. It's 2015. China's economy is slowing, and commodity prices have been in a brutal bear market for years. Global Mining Corp's earnings have collapsed, and its P/E ratio is a scary-looking 25x. The dividend was just cut. Headlines are filled with doom. But Investor B does her homework. She sees that the company's balance sheet is strong, it's one of the lowest-cost producers in the world, and its stock is trading below its tangible book value for the first time in a decade. She understands the business is not going bankrupt, just out of favor. She buys, knowing it may go lower, but confident in her
margin_of_safety. Over the next five years, the cycle turns, and her investment triples in value.
Investor B understood the most important rule of investing in cyclicals: You buy when the P/E is high, and sell when the P/E is low. It's completely counter-intuitive, but it's the heart of the value approach.