Warren Buffett once wrote, "Stocks provide you minute-to-minute valuations for your holdings whereas I have yet to see a quotation for either my farm or the New York real estate ... if a moody fellow with a farm bordering my property yelled out a price every day to me at which he would either buy my farm or sell me his – and those prices varied widely over short periods of time depending on his mental state – how in the world could I be other than benefited by his erratic behaviour? If his daily shout-out was ridiculously low, and I had some spare cash, I would buy his farm. If the number he yelled was absurdly high, I could either sell to him or just go on farming."
Which is, of course, what happens to my BHP shares which during the last twelve months alone have moved between $35.83 and $53.72 and are right now $45.88, well below my average buy-in price but I'm not fazed by those price swings if for one reason alone: Olympic Dam!
BHP bought Western Mining's Olympic Dam in 2005 for $9 billion but it took another two years before the world began to see the real size of Olympic Dam when BHP revealed the first results of a massive drilling program begun almost as soon as it acquired the mine in 2005.
The company announced a 77% increase in the size of the mineral resource to 7.7 billion tonnes. To put this into context, BHP's then managing director, Marius Klopper, said Olympic Dam was now the second-largest mineral resource in the world, behind only Norilsk's nickel-copper-platinum-palladium ore fields in Siberia.
In annual reports since 2007, BHP has quietly revealed further increases in the size of Olympic Dam after more drilling to improve confidence in the size and continuity of the orebody.
By late 2009, the mineral resource had reached 9.1 billion tonnes - more than double the 4.4 billion tonnes BHP inherited from Western Mining in 2005. Olympic Dam is now also more than four times larger than the first estimate announced by Western Mining back in 1982, despite the extraction of 2.7 million tonnes of copper, 55,000 tonnes of uranium oxide, 1.2 million ounces of gold and almost 12 million ounces of silver since mining began in 1988.
The total resouce of 9.1 billion tonnes is enough to sustain Olympic Dam at its current production rate for the next 750 years, but BHP plans a huge boost to the rate at which minerals are extracted. The trillion dollars of wealth already known at Olympic Dam is still nowhere near the whole story. There is a real possibility that Olympic Dam is part of a super-giant orebody which could supply the world with copper, uranium, gold and silver for several centuries, not just the next 100 years.
So what's the current minute-to-minute valuation of BHP? Who cares!
