BHP Riding High on Commodities Strength

Shares in BHP remained at their current near record levels yesterday after it released an encouraging six-month sales and production report that saw the company ride the boom in commodity prices nicely.

The report revealed that BHP had ridden the latest iron ore boom and the rebound in copper, nickel and oil prices specifically.

It enjoyed a 35% improvement in the average realised price of iron ore to $US103.78 a tonne, a 39% jump in copper to $US3.32 a pound, a 10% lift in oil price to $US41.40 a barrel, and a 22% rise in the nickel price to $US15,140 a tonne.

This was offset slightly by weakness in coal and LNG prices during the last six months, although LNG prices are up more than 30% so far in January because of a hard winter creating a shortage in the Asian region as demand from China, Japan and South Korea suck up any surplus and spot cargoes.

That has flowed through to coal prices – especially thermal (power) coal even though China’s bans are still stopping direct sales of thermal and coking coal by BHP, prices for exports elsewhere have risen.

BHP updated its guidance for the full year – iron ore guidance has increased to between 245 million tonnes and 255 million tonnes, reflecting the restart of Samarco pellet operation in Brazil in December. (it was previously 244 to 253 million tonnes).

Including shares in production held by shareholders in some of the mines, BHP is looking at between 276 million tonnes and 286 million tonnes of iron ore shipments for the financial year to June 30.

The company produced 128.4 million tonnes of iron ore (145 million tonnes on a 100% basis), a rise of 6% on the six months to December, 2019.

Its copper guidance has narrowed to between 1.510 million tonnes and 1.645 million from between 1.480 million and 1.645 million tonnes.

BHP said its petroleum guidance remains unchanged at between 95 and 102 million barrels of oil equivalent (MMboe).

However, volumes are expected to be in the upper half of the guidance range as additional production from the Shenzi is partially offset by the impacts of significant hurricane activity in the Gulf of Mexico.

BHP said petroleum production fell 16% on the prior corresponding period to 24Mmboe during the second quarter. This led to a 12% decline in half year production to 50Mmboe as prices recovered from their record lows in April.

BHP said its full year unit cost guidance remains unchanged for the 2021 financial year.

A negative in the figures was an impairment charge of between $US1.15 billion and $US1.25 billion post tax to be taken in the December half year accounts for its New South Wales Energy Coal (NSWEC) and associated deferred tax assets. That business is being put on the market.

BHP told the ASX on Wednesday it had produced 144 million tonnes of iron ore from its Western Australian mines in the December half.

“BHP delivered strong safety and operational performance in the first half of the 2021 financial year, including record production at Western Australia Iron Ore,” chief executive Mike Henry said in Wednesday’s statement.

The miner reported quarterly iron ore output of 70.4 million tonnes from its WA mines.

BHP said its South Flank iron ore mine in the Pilbara is on track for a production start in the middle of this year.

Despite an improvement in copper production over the first quarter, second quarter production was 6% lower than the prior corresponding period at 428,000 tonnes and 5% lower for the half at 841,000 tonnes. That means it couldn’t maximise the surge in prices in the half, and especially in the final quarter.

BHP lifted copper production at the Olympic Dam mine in South Australia by 16% to 99,100 tonnes. Guidance for the 2021 financial year sits between 180 and 205 thousand tonnes at Olympic Dam.

BHP’s energy coal guidance was reduced to between 21 and 23 million tonnes due to a 91-day strike at the Cerrejón coal mine in Columbia and significant wet weather events lowering its Queensland Coal volumes.

The company produced 19.2 million tonnes of metallurgical coal in the first half of the 2021 financial year, up 5% from the corresponding period.

“Coal production was impacted by wet weather in Australia and strike action in Colombia. Our major development projects in iron ore, petroleum and potash are progressing well,” Henry said.

BHP shares rose 0.9% to $46.30, $1.25 from its all-time high hit earlier this month.

 

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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