Preparation for Interview
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Some risk factors that may affect BHP Billitons long term strategy are listed below:
Changes in commodity prices – As BHP Billitons core business are mining of raw materials to be converted into commodities in the market. If the price of these commodities drops, so will the value of their mined products, cutting into the companys profit margins.
Failure or delay to discover new reserves, maintain and exploit existing reserves – BHP faces tough competition with other global mining companies over discovery of new reserves especially in emerging markets. The firm has to be proactive in acquiring mining rights to new discoveries but at the same time concentrate on developing technology to exploit its existing reserves in the most efficient way possible.
Reduction in demand particularly in Chinese market -BHP has been a big beneficiary from the rapid infrastructural growth in China and as a result is strongly dependent on the country continuous appetite for its products.
The accounting choices made by BHP are based on the ability to make estimates about future assets and liabilities. The management constantly evaluates its estimates about its assets, liabilities, revenue and costs. These estimates are based on historical experience and factors that may affect the company in the future and may not hold to the true value. BHP accounting policies are based on the following seven basic principles:
Reserve estimates
Exploration and evaluation expenditure
Development expenditure
Property, plant and equipment
Defined benefit pension schemes
Provision for closure and rehabilitation
Taxation
These principles might apply differently for operations in different geographical regions. As such, each region and operation has to be analysed separately and the estimates from each of them are then combined to define the accounting estimates for the company as a whole.
Rio Tintos strategy may be affected by 5 different categories of risks :
External risks: Commodity prices and global demand for the Groups products are expected to remain uncertain, which could have a positive or negative impact on the Groups business. Continued growth in demand for the Groups products in China could be affected by future developments in that country.
Strategic risks: Failure of the Group to make or successfully integrate acquisitions could have an adverse effect on the business and results of operations. The Groups proposed iron ore production joint venture with BHP Billiton in Western Australia may not yield the synergies anticipated. The Groups