Thursday, October 11, 2007

Google versus BHP Billiton - Part II

11 October 2007

I wrote recently that in ten years' time, it is conceivable that BHP Billiton could be worth 100 times as much as Google, in terms of market value.

Again, BHP Billiton is the world's largest integrated miner. They sell real raw materials that are in acute demand as the world's population soars past 6.75 billion souls.

Google is an absolutely great company that among other things sponsors the site which hosts my web log. However, Almost no one who uses Google's services has to pay anything for them, with the exception of advertisers. Thus, Google's business is very vulnerable to the vicissitudes of the consumer marketplace, particularly to periods of recession, which predictably come every few years.

BHP Billiton is somewhat insulated from marketplace pressures, as it takes 10-15 years to bring a mine from the exploration to the production stage. Thus, there is a large barrier to entry in BHP Billiton's core market.

By way of contrast, anyone who wants to can host internet services. Thus Google potentially faces competitors who may be as smart as or smarter than the very smart people who run Google.

Google just hit a new intraday stock price high today of $641.41. At that level, the company was briefly worth more than $200 billion in market value. That is against annual earnings of $3.69 billion and revenues that could run as high as $15 billion, assuming business continues at its current clip (always an assumption – never a certainty).

Here is the fact that I found most interesting today. Google is now worth more than Viacom, CBS, Time-Warner and Disney combined (and recall that Time Warner still owns and operates the internet phenomenon of the past – America Online... remember that company?).

I doubt in ten years' time that Viacom, CBS, Time-Warner and Disney combined will be worth less than Google. I also doubt that they will fare so well as BHP Billiton during this period.

However, I will add to my earlier proposition that in ten years' time, Viacom, CBS, Time-Warner and Disney (combined) will almost certainly be worth ten times as much as Google.

That is just how things go in the real world. While Google inhabits an unreal world, companies such as Viacom, CBS, Time-Warner, Disney... and BHP Billiton... conduct their operations in the real world. The next ten years will be hard for Viacom, CBS, Time-Warner and Disney, whereas the next decade is likely to treat BHP Billiton kindly.

I hope that Google does well over the next ten years, as I really like the company. But I am not optimistic that the events of the coming decade will support its present stock valuation at anything close to its current ($200 billion) level.

All posts on this topic:

Revisiting BHP and Google at Year Four

An Early Update on Google versus BHP

Google versus BHP Billiton - Part II

Meet Me Here in Ten Years' Time: BHP Billiton vs. Google

Wednesday, October 03, 2007

Ontario Provincial Elections – Stumbling at the Threshold of Opportunity in Northwest Ontario

3 October 2007

It is no secret to my readers that I have often written on the topic of mining, but rarely about mining in Northwest Ontario.

As the Ontario provincial election nears, perhaps it is time to rectify that, though my time is brief.

I have just reviewed the
statements of all four Northwestern Ontario candidates, and not one of them has voiced the recognition that mining is the future of Northwest Ontario.

The Conservative candidate Penny Lucas came closest, with a proposal to remove the diamond mining tax.

But that is all that has been said on the issue so far.

The focus is retrograde, a backward look at the decline of the forestry industry, rather than a forward look at the rise of mining.

How sad.

In a decade’s time, with mining activity far advanced globally, I'm sure this issue will garner the attention it deserves.

Let me reiterate: mining is the future of the north. And we’re not talking small stuff. Anyone who has visited Red Lake recently is aware that gold exploration and mining are ramping dramatically. Believe me, that is not even the tip of the iceberg. Everything we have seen so far – including the current explosion in exploration activity in Red Lake – is only an intimation of where we are going.

The tip of the iceberg fails as an analogy. We have seen perhaps only the single molecule of the ice on the tip of the iceberg.

For every job now being lost in forestry, some multiple of that will be created in mining over the next 2 to 3 decades – perhaps there will be 10 new jobs in mining for every job lost in forestry by 2037.

With its rich but forgotten mining heritage, Northwest Ontario is in a position to become the “next Alberta” in Canada. How unfortunate that our leaders, and perhaps many among our populace, have forgotten where we came from in this region.

How far have we drifted from our traditional focus on mining activity?

We no longer even train people in mining occupations in our region. Decades ago, it was possible to receive mining skills training in Sault Ste. Marie, for example, as a geologist’s assistant. That program has closed.

Confederation College, with campuses throughout our region, offers few if any courses relevant to mining skills training.

We are not without our visionaries and our leaders. Certainly Rob McEwen's return to Red Lake through his investment in Rubicon Minerals is a strong affirmation of our region’s future. And I am a great advocate of Ewen Downie and the Stares brothers in Thunder Bay.

In fact, our region has a rich mining heritage, and we have the skill and knowledge base to refocus on our future in this booming global industry. But the potential place of mining in our region is taking a backseat to discussions about forestry’s decline, the needs for education, health care and roads, and specific proposals to throw money at the forestry industry to arrest its inevitable decline.

Northwestern Ontario residents and the candidates vying for election in our district, seem largely unaware that mining activity will be our future direction. Based on their stated platforms, I am finding it difficult to locate a candidate in whom I can invest my vote.

How do the parties stack up with respect to their vision of the north’s future?

Well, the Conservatives at least want to remove the diamond mining tax – and to arrest forestry’s decline, improve infrastructure, etc. The usual stuff.

The Liberals – regrettably – are proposing to throw a billion dollars of taxpayer’s money at the forestry industry to see what sticks to the wall. Believe me, it will be less than we desire. My estimate – a billion dollars, thoughtfully directed to spur mining activity – would create 10 jobs for every one that the Liberals’ new forestry initiative will bring to pass – and perhaps 100. The Liberal’s regressive and costly forestry policy gives good reason not to vote for this party.

The Green candidate is proposing growing hemp. At least this person has considered that new industrial development is needed in our region. But we are not a traditionally agricultural region, and I doubt that hemp will be our future, but more power to her.

Mr. Hampton, our NDP incumbent, is very clued-in to the pulse of the north, but seemingly paying little attention to mining, perhaps because the population itself has not yet awakened to this issue.

So – the critical issue of our era – the need for infrastructure, facilitative legislation and government policy, the reopening of local mining offices, training in mining occupations skills, incentives to attract the best and the brightest to our area, incentives for mining exploration and mine development – is receiving no attention In the present election.

To be honest, how we vote this month will thus have little impact on our future. But perhaps we can at least begin to promote discussion about the issues that concern our region.

Regardless of what happens at the political level, entrepreneurs such as Mr. Downie, the Stares brothers, and many more, will move forward in mine development. Perhaps they will have to travel far beyond our region to find the skilled employees they need to carry out mineral exploration and mine development in Northwest Ontario, but it will happen, no matter how backward looking the citizens and political leaders of the north remain.

In summary, all four candidates seem to be marching backwards into a future that will be dramatically different than the recent past, and not one candidate seems to be prepared for the dramatic opportunities that rest at our doorstep.

Tuesday, October 02, 2007

Meet Me Here in Ten Years' Time: BHP Billiton vs. Google

2 October 2007

One of my mentors and financial guides,
Bill Fleckenstein, commented today on the utter mindlessness in today's stock market.

Mr. Fleckenstein stated the following: "I was quite struck by the number of e-mails I received yesterday from thoughtful people I know who feel like we're in an environment that no one has ever seen, in which thinking is totally useless. While that does seem to be an accurate assessment, it occurs to me that market action this seemingly mindless can only occur once you're near the end of whatever the process is that's under way."

In particular, he cited the soaring market capitalization of
Google, which I'll grant you is a great company (and also my sponsor without charge at this site), but whose income is entirely dependent upon a somewhat fragile and obviously market-sensitive base of paid internet advertising.

Google as a company seems also to be trying to do almost everything at once. The managerial boundaries and cost controls do not appear to be totally clear. Certainly there is risk here, particulalry when one considers that revenues are not profits. In fact, considerable discipline is required to generate profits from revenues, and Google has yet to prove that it can accomplish this mission.

I read only last week that Google has now approached the market capitalization of
BHP Billion, the largest integrated mining company on the planet – a massive global company brimming with real, irreplaceable and increasingly valuable material, technological and human assets.

In recognition of the current "mindlessness," I'd like to propose an exercise regarding Google's stock price.

Presently, Google (stock symbol: GOOG), today’s most successful internet services company if you will, is approximately equal in value to BHP Billiton (stock symbol: BHP), our globe’s largest mining company, and one that has been tried and tested through decades of often harsh experience.

According to Forbes Magazine, in March 2007, Google had a price to earnings ratio of about 45:1. By way of contrast, BHP had a price to earnings ratio of about 12:1.

Let me propose - as a thought experiment for the presently unthinking – that in 10 years' time, Google could well have declined in market capitalization by a factor of 10 (at $18 billion, it would still be worth more than most of today’s mining companies).

Contrariwise, BHP's market capitalization could increase by a factor of 10 (possibly becoming the world’s first, or one of the world’s first, trillion dollar companies).

Thus, the relationship between today's two virtually equivalent companies could be one in which BHP is of greater value than GOOG by a factor of 100:1.

The name "Google" is based on "googol," a very large number, conssiting of "1" followed by 100 zeroes. 100:1 is hardly a googol, but it is certainly pointing in that direction....

Just to stimulate thinking during an era of supposed thoughtlessness....

Today’s values:

stock price $79.80 / market capitalization $229.74 B / Annual revenues of $32 billion/year / #205, Fortune Global 500

stock price $584.39 / market capitalization $182.41 B / Annual revenues approaching $15 billion/year / Not yet on Fortune Global 500

I'll meet you here on October 2, 2017, and we'll have a look at the market capitalizations of what are today two of the most valuable companies on the planet. Let’s see how this thought experiment plays out….

All posts on this topic:

Revisiting BHP and Google at Year Four

An Early Update on Google versus BHP

Google versus BHP Billiton - Part II

Meet Me Here in Ten Years' Time: BHP Billiton vs. Google

Code 46 - Another Authentic Science Fiction Film

2 October 2007

I have had further success in finding an authentic science fiction film.

Code 46, starring Tim Robbins and Samantha Morton, is another low-budget effort that for the most part could have been a stage play. The director is Michael Winterbottom.

That’s right. This one is about the acting, and Robbins and Morton excel. But the premise is pure science fiction. What if biotechnology had become very advanced, and humans were widely reproduced through in vitro fertilization and cloning in order to regulate the emergence of troublesome genes?

This particular effort is low budget enough that there was no attempt to construct futuristic settings. Shanghai seemed a sufficiently futuristic city, so the crew operated in that city for two weeks (due to limited funds) – and the interiors were shot largely in London. The buildings, household items, and vehicles are exactly those you would have seen in 2003 when the movie was filmed.

Particularly during the scenes inside the vehicles, with evident contemporary Toyota logos, I was once again reminded of Godard’s use of “intergalactic space” in

The film is set nominally in a future different than our own due primarily to the presence of advanced biotechnology (fingers can also be regrown), ozone-piercing ultraviolet radiation from the sun forcing a nocturnal lifestyle, further multi-ethnic blending in the world’s leading urban centres, and the rigid segregation of the genetically pure from the genetically tainted.

However, given that there was so little effort dedicated to creating a futuristic set, my own preference would be to consider this an alternative reality film. What if
Alejandro Zaffaroni had been born 50 years earlier and nothing had been done about chlorofluorocarbons? Let’s just think of this as a self-reproducing fractal universe parallel to our own, courtesy of superstring and inflation theory (now perhaps increasingly in question, due to oscillating universe theory, but that’s another matter).

Now, let’s add a couple of additional elements. How about a virus that is neurologically active, enhancing empathy? Add to this a chance meeting with a woman who might be the clone of your mother – but she is young – near your age. Your genetic similarity is 50%, and perhaps you have never met your mother, due to being raised by host parents.

How might you respond to this person with whom you are deeply biologically but not experientially linked? There is only enhanced empathy to guide you.

How refreshing that this is not a film “about” technology. Nor is it a disguised thriller, action or horror movie.

Code 46 is quite simply the story of how two human beings might respond to a new type of situation that could be made possible only through the implementation of technologies which are presently conceivable, but not yet in application.

Robbins and Morton seem to understand this intuitively, and everything in the film is focused around their very human solution to this dilemma – a solution, of course, which the genetically regulated society cannot permit. I do not think this film could have been better acted. It is first rate.

Watch and enjoy. It’s the real thing!