It was an excellent final quarter and full 12 month production report from BHP Billiton: records for many of its commodities, especially the important iron ore business.
In fact it matched nicely the upbeat tone from the Rio Tinto 2nd quarter and first half production report a week ago.
But oil prices sank on Tuesday night, hitting a six week low of just over $US127 a barrel, a fall of more than $US20 a barrel in three weeks. So it’s no wonder that punters ignored the good news in the production report, looked at oil, and then marked down BHP shares.
They fell 32c to $38.68, while its target, Rio, fell 60c to $120.10 a share. The 3.4 share offer for Rio was valued at $131.51 at BHP’s close yesterday.
Just as Rio did by singling out its iron ore business for special mention (production up 13%-14% in the quarter and the half), BHP did likewise with its iron ore business. Not only did production rise 15% to a record 111.3 million tonnes, BHP forecast a possible 23% jump this year in production.
Rio lifted first half iron ore production 14% to more than 79 million tonnes and is aiming to get well beyond 160 million tonnes for the year to December.
BHP said annual production was significantly up in 13 commodities, with records achieved in seven commodities.
These records were delivered in 14 assets across six of our nine Customer Sector Groups (CSG).
BHP said annual production records achieved in petroleum, copper, iron ore, manganese ore and alloy, alumina and molybdenum.
Annual production also increased in crude oil and condensate, uranium, lead, zinc, silver and diamonds.
"This was achieved in an environment in which supply disruptions and input cost pressures are placing challenges on the industry response to continued strong global demand for commodities.
"We achieved record shipments in iron ore and manganese, at a time when pricing reached unprecedented levels and demand outlook remains very strong. Western Australia Iron Ore achieved an eighth consecutive annual production record, maintaining an exceptional track record of project delivery.
"Metallurgical coal production recovered strongly from the extreme weather interruptions during the March 2008 quarter and quarterly production records achieved in alumina, copper, iron ore and manganese ore."
The company said annual production records delivered in Western Australia Iron Ore, GEMCO, TEMCO, Illawarra Coal, Hunter Valley Coal, Minerva and Worsley (all Australia), Escondida (Chile), Samarco and Alumar (both Brazil), Samancor (South Africa), Cerrejon Coal (Colombia), Zamzama (Pakistan) and Paranam (Suriname).
"Quarterly production records delivered in Escondida, Yabulu (Australia), Western Australia Iron Ore, GEMCO, Samarco, Samancor, Alumar and New Mexico Coal (USA).
"Annual volume growth of 27 per cent in crude oil and condensate from the continuing ramp up of newly commissioned projects and strong operational performance.
"Annual uranium oxide concentrate production at Olympic Dam (Australia) was the highest since the Western Mining (WMC) acquisition.
"Ramp up of production from these projects and future growth options will continue to increase the weighting of high margin liquids in our portfolio mix at a time of historically high oil prices.
"We continue to develop and deliver world class projects that add significant shareholder value. First product was delivered from 10 major projects across five commodities during the year. A further seven major projects were sanctioned during the period.
"Over the past quarter we announced a significant increase in our iron ore and manganese resources and reserves.
"This, along with the Pampa Escondida prospect (Chile), are excellent examples of our deep inventory of expansion options. These options are underpinned by an extensive exploration and development program."
In terms of earnings, the higher output of iron ore and oil and gas will enable the company to take advantage of the price rises for the commodities that occurred in the quarter.
Coking coal exports will earn more, but the full benefit won’t come until the next quarter when the Queensland mines ramp up to full capacity.
Record demand for iron ore and coal from countries like China and India, and record prices for oil, will contribute billions in dollars in profits to BHP in the June 30 year.
BHP last year reported net profits up by more than quarter to $US13.4bn. Ahead of the production report analysts from ABN Amro in Australia had forecast record profits of $US16.1bn for the 2008 year.
BHP said its fourth-quarter iron ore output rose 15% to a record, driven demand from China. Iron ore production rose to 29.7 million tonnes in the June quarter from 25.7 million tons a year earlier.
The company forecast that 2009 output could rise 23% to 137 million tonnes.
"We achieved record shipments in iron ore and manganese ore at a time when pricing reached unprecedented levels and demand outlook remains very strong,” the company said in the statement to the Australian stock exchange.
"Supply disruptions and input cost pressures are placing challenges on the industry response to continued strong global demand for commodities.”
Output of coking coal fell 18% because production was cut from its mines in Central Queensland. Output is now recovering and the mines are operating at 90% capacity.
The company said crude oil and condensates output jumped 54% in the fourth quarter, due to the start-up of fields in the Gulf of Mexico and Australia.
Oil and condensates production rose to 17.6 million barrels in the th
