Strong Production Numbers a Sweetener for BHP

Ahead of the shareholder vote later today (Thursday) to unify BHP’s corporate structure and make the ASX its primary listing, the big miner has produced a reassuring half year production and sales update – especially for iron ore.

That was unlike rival Rio Tinto which produced a downbeat full year report and set of forecasts for 2022 on Tuesday.

The meetings later today will approve the unification and give BHP a 10% share of the value of the ASX 200.

The company said in yesterday’s statement the proposal will make the company more agile.

“Subject to shareholder approval and UK Court sanction, unification is expected to complete by January 31,” the company said.

BHP said it would retain its standard listing on the London Stock Exchange, where it is currently the second-largest company, and its shares would continue to be traded in Johannesburg and New York.

Unlike rival Rio, BHP delivered stronger-than-expected output of iron ore in the final three months of 2021 despite the challenges of COVID-19 border restrictions limiting availability of skilled workers in WA especially.

BHP lifted its quarterly production of the commodity by 5% to 73.9 million tonnes, beating some analysts’ expectations and putting the miner on track to achieve its full-year target.

Rio reported a 3% fall for all of 2021, whereas BHP’s half year performance was a near record.

The company’s Western Australia Iron Ore (WAIO) business produced 127.3 million tonnes (144 million tonnes on 100%) from for the six months to December 2021.

BHP’s overall iron ore production was 129.401 million tonnes for the December half of 2021 – a 1% per cent increase from the same half in 2020.

That included 2.1 million tonnes of pellets from the Samarco operation in Brazil jointly owned with vale, the big Brazilian iron ore miner.

Total iron ore sales from WAIO were 127.72 million tonnes (1444 million on a 100% basis).

BHP produced 66.1 million tonnes of iron ore in the December quarter, up 4%.

The company said that the higher volumes reflect strong supply chain performance, increased ore car availability, and the continued ramp up of its new South Flank operation. This was partially offset by the impact of temporary rail labour shortages due to COVID-19 related border restrictions.

“Our continuing focus on people and on operational reliability enabled us to achieve near-record production in iron ore and to reduce the impacts of adverse weather- and COVID-19-related labour constraints in our operation,” BHP CEO Mike Henry said in the quarterly report to the ASX on Wednesday.

Things weren’t quite as positive for BHP’s copper production, which fell 3% quarter on quarter to 365,500 tonnes. This led to a 12% decline in production to 742,000 for the first half.

This was driven by lower volumes at Olympic Dam due to the planned smelter maintenance campaign, which was partially offset by higher volumes at Antamina.

But the maintenance was completed this month and Olympic Dam will ramp up to full capacity by April this year, BHP said.

Metallurgical (coking) coal production was flat quarter on quarter at 8.8 million tonnes and down 8% for the half to 17.7 million tonnes.

Volumes were flat due to double the amount of rainfall recorded in the quarter impacting most operations and planned maintenance in the previous quarter.

Energy coal production in NSW tumbled 30% quarter on quarter to 3 million tonnes limiting its first half production growth to 5% to 7.2 million tonnes.

BHP said that the lower volumes were due to three times the amount of rainfall in this quarter impacting stripping and mine productivity.

BHP’s nickel production was strong and rose 21% quarter and quarter to 21,500 tonnes.

But this was not enough to prevent a 15% decline in half year nickel production to 39,000 tonnes.

The second quarter’s higher volumes were due to planned maintenance across the supply chain in the previous quarter.

BHP reported its petroleum operations as discontinued due to the merger with Woodside Petroleum.

It reported a 7% production decline for the quarter to 25.7 million barrels of oil equivalent (Mmboe). Half year production was up 5% to 53.2 Mmboe.

Looking to the rest of 2021-22, BHP’s production guidance for the rest of June 30 year remains unchanged for iron ore, energy coal, and nickel.

Copper production is trending towards the low end of its guidance range and metallurgical coal guidance has been reduced due to significant wet weather impacts and COVID-19 related labour constraints.

It was a similar story for its cost guidance. BHP’s full year unit cost guidance for WAIO, Escondida and NSWEC remains unchanged.

WAIO iron ore costs are trending towards the lower end of its guidance range thanks to the strong production performance. Cost guidance for Queensland Coal has been increased, reflecting lower expected volumes for the full year.

BHP shares eased 0.3% to $46.56.


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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