BHP Delivers Record Iron Ore Output But Energy Writedowns Loom

By Glenn Dyer | More Articles by Glenn Dyer

BHP has reported its biggest-ever quarterly output of iron ore from its Western Australian mines, but while its copper business was ok, the oil and gas division fell short of expectations thanks to the impact of coronavirus pandemic cutting demand.

Despite that negative BHP on Tuesday failed to join the likes of Santos, Woodside, Oil Search and Origin in revealing a write-down in the value of its oil and gas business (which is mainly based in the US).

But that is coming and will most likely be revealed when the full-year profit is released next month.

The weight of impairments and other cuts announced its Australian rivals, plus majors like Shell and BP mean BHP will have no option than to follow suit, and at the same time cut the forecast oil and gas prices out to 2025 with which it uses to value assets in the business.

But iron ore (like Rio Tinto) is the flavour of the month at BHP and yesterday it revealed had shipped 76 million tonnes from its Pilbara mines in WA in the three months to June. That was up 11% from the March quarter and up and up 6%% from 71 million tonnes in the June 2019 quarter.

For the year BHP produced 281 million tonnes, up 4% from 2018-19.

In a 2020-21 forecast, said it expects to produce between 276 million tonnes and 286 million of iron ore in the 2021 financial year.

That would be a fall of 2% at the bottom, and no better than the 2018-19 figure, or a rise of just 2% at the top of that range and marginally above the 2019-20 figure.

Depending on prices (of course) and production BHP at best will be looking at a weak result from its WA iron ore mines this financial year, even though prices are currently above $US100 a tonne.

BHP’s June quarter and annual production figures released on Tuesday showed weaker performance in its oil and gas business, with petroleum production falling 10% to 109 million barrels of oil equivalent (MMboe), falling short of the company’s forecasts of 110 million barrels.

BHP said the volumes were marginally below guidance as a result of weaker than expected gas demand due to the impact of COVID-19.

BHP’s average oil price for the December half-year was $US60 a barrel, so with the plunge in the second half and lower demand and production/sales, BHP is looking at a sharp fall in earnings for the year to June from this division.

In 2020-21, BHP is forecasting production of 95 to 102 MMboe. This represents a 6% to 13% decline.

BHP’s copper production was up 2% in 2019-20 to 1.724 million tonnes. This was despite lower production in the fourth quarter due to the temporary operating suspensions at mines in South America because of COVID-19 infections.

Copper production is expected to fall by 13% to 21% in the 2021 financial year to 1.480 million to 1.645 million tonnes because of a forecast fall in output at Escondida in northern Chile.

BHP said it’s metallurgical coal production was 41 million tonnes in the year to June, down 3%. A very strong performance in the fourth quarter prevented a much worse result.

In 2020-21 production is expected to be in the region of 40 million tonnes to 44 million tonnes. The low end represents a 3% fall and the high end represents a 7% rise. This will depend on the recovery in steel demand outside of China in the next year.

BHP’s energy (thermal) production fell 16% to 23 million tonnes and nickel production fell 8% to 80,000 tonnes. The latter is expected to recover with production growth of 6% to 19% in the 2021 financial year.

Energy Coal production guidance for the new financial year ranges from a 5% decline to 4% growth.

In Tuesday’s statement, CEO Mike Henry said BHP has delivered a strong operational performance in the 2020 financial year with record production across multiple operations and an improved cost base.

“This performance, achieved in the face of COVID-19 and other challenges, is a result of the outstanding effort of our people and the support of our communities, governments, customers, and suppliers,” Mr. Henry said.

“Our diversified portfolio and high-quality assets, together with our strong balance sheet, make us resilient to the ongoing uncertainty in the markets for our commodities. We expect to continue to generate solid cash flow through the cycle and we remain confident in the outlook for demand for our products over the medium to long-term.”

BHP shares 1.1% to $38.80.

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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