Copper Dampens Solid Quarterly From BHP

By Glenn Dyer | More Articles by Glenn Dyer

Except for copper, BHP has made a solid start to its 2018-19 financial year with first-quarter iron ore production (its most important commodity) rising 8% on strong Chinese demand for high-grade ore which has helped drive the price of ore over $US70 a tonne tor the first time in six months.

“We are on track to meet guidance for the 2019 financial year across our commodities, except copper where we have reduced production guidance slightly following outages at Olympic Dam in Australia and Spence in Chile,” chief executive Andrew Mackenzie said in yesterday’s September (first) quarter production report.

BHP’s iron ore output rose to 69 million tonnes in the September 30 quarter, compared with 64 million tonnes a year ago. Rio Tinto reported a 5% fall on Tuesday in September quarter output.

The miner maintained its 2018-19 guidance at 273 million to 283 million tonnes of iron ore.

BHP said that increased iron ore volumes at the WA mines “were supported by record production at Jimblebar and improved reliability across our rail network and port operations.”

“As expected, production was lower than the June 2018 quarter as we optimised maintenance schedules across the supply chain and implemented a program of work to further improve port reliability and performance.”

BHP recently started work on the $5 billion South Flank project in the Pilbara, which will replace 80 million tonnes the company currently mines at Yandi each year. Importantly South Flank’s 62-63% iron ore product will replace Yandi’s 56% ore, boosting the average grade of BHP ore from the Pilbara by one percentage point to 62%. That small change is worth a lot of money in the coming years.

China’s iron ore imports this year have held remarkably steady, with demand in the world’s second-biggest economy not as affected by the trade dispute with the United States as many western forecasters believe.

Imports of iron ore increased 4% to 93.47 million tonnes last month from 89.35 million tonnes in August, but were still sharply lower than the record 102.83 million tonnes a year ago, according to China’s General Administration of Customs.

For the first nine months this year, China bought a total of 803.34 million tonnes of iron ore, down 1.6% on the same period of 2017.

What that disguised is the surge in demand for higher grade iron ore of the type BHP, Rio Tinto and Brazil’s Vale produce – ore with a contained iron content of 60% or more and up to 65%. That is driving the price higher – it currently sits at more than $US71 a tonne which is the highest since April.

That is more efficient to process (it produces more crude steel from the same amount of ore) and is less polluting and therefore cheaper than lower grade ores like the 58% material Fortescue has been selling and taking a growing discount. That is why Fortescue is spending close to $A2 billion on a new mine capable of producing 60% ore (fines, which are favored by Chinese mills).

But the company trimmed its guidance for copper production, citing outages at key mines in Chile (Spence) and Australia (Olympic Dam).

As a result, BHP lowered its 2019 copper production forecast by about 3% to a range of 1.62 million tonnes to 1.71 million tonnes,

The Olympic Dam mine was closed for repairs and is expected to resume operations by the end of this month, while operations at Spence continue at partial capacity following a fire in September.
Operations at Spence are expected to reach full capacity during December, the company said in a statement.

The outages also hurt production during the quarter, with copper output flat at 409,000 tonnes. Unlike Rio Tinto which saw a 32% surge in output to more than 179,000 tonnes because of a rebound in production at its Kennecott mine in the US).

Nickel production fell 8% after production at its Kalgoorlie smelter in Australia were suspended following a fire in September. The smelter is expected to ramp back up to full production in early November. BHP maintained its production guidance for the year

BHP said that in petroleum, it extended its exploration success and encountered hydrocarbons in three wells. The Onshore US sale process is progressing to plan and is expected to be completed by the end of this month.

That will be in time for the company to reveal capital management plans at the annual meeting of the Australian arm in November. the Plc meeting was held in London overnight Wednesday.

BHP shares eased 0.7% to $33.66. Investors were not that fussed for what was a solid opening to the 2018-19 financial year for the world’s biggest miner.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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