Bhp Billiton Business Research

BHP Billiton (BHP) is the world's largest resource company. It mines and processes a diverse range of materials including iron ore, coal, base metal, petroleum and aluminums. Its headquarters has located in Melbourne, Australia and with major management offices in London, United Kingdom. The company's three principal areas of business are: minerals exploration, production, and processing (principally coal, copper, iron ore, diamonds, silver, lead, zinc); hydrocarbon exploration and production; and steel production

(Source: E:international exchange FOR BHPAustralian US Dollar BHP & Resources _ macrobusiness.com.au.htm)

As the pie chart above shown, Australia has still the most major market of BHP with out of the $63.7B in non-current assets, 55% are located in Australia. Iron ore and metallurgical coal- commodities which are primarily mined in their Australian operations- make up 33% of their revenues. This means that the main of BHP's profit (which are denominated in USD) come from operations using Australian dollar. Another 23% of BHP revenue comes from South America (mostly Brazil and Chile) and South Africa. In BHP annual report 2010, it states that the US dollar is continuously the major currency in which the majority of BHP sales are denominated. However, BHP operating cost is influenced by the currencies of those countries where BHP mines and processing plants are located and also by such currencies in which the costs of imported equipment and services are determined. Obviously, the Australian dollar, South African rand, Chilean peso, Brazilian rela are the most important currencies impacting on BHP operating costs

BHP is exposed to exchange rate transaction risk on foreign currency sales and purchases. Historically, hedging is undertaken through transactions entered into in foreign exchange markets. The company uses forward exchange contracts and currency option contracts for hedging. Under policies of the Board of Directors, anticipated US dollar an exposure of Australian- based entitles may be hedged for up to five years. In detail, the BHP's policy aims to hedge up to a maximum limit of 70% of the forecast US dollar exposures of Australian-based entitles in the first and second years, and a maximum of 50 per cent in years three to five. Actually, there is no minimum limit its. Moreover, these policies can be varied only by the Board of Directors. Maturity profiles of foreign exchange hedges are slightly the same as those of the anticipated transactions being hedged.

In another aspect, BHP is also exposed to exchange rate translation risk in relation to foreign currency denominated debt. It is very important to have clearly view on the foreign currency translation exposures because this will help BHP in managing and set up the proper approach against the effect of variations in the exchange