Price softness offsets robust volumes for BHP

Company News

by Glenn Dyer

A solid December quarter and half year for BHP (ASX:BHP) in its core iron ore and copper businesses while production and shipments of coking and thermal coal from its Queensland and NSW mines continued to recover from the impact of wet weather and flooding earlier in the year.

Like Rio Tinto the WA iron ore operations of BHP are its heartland business – but it has a bigger copper operation than Rio and its nickel business is now a third core operation.

The report revealed that while production and sales volumes were mostly solid (iron ore production for the half was a record), prices were significantly weaker in the six months to December than in the same period of 2021.

By way of example, BHP reported an average iron ore price of $US85.46 a tonne, down 25% from the December, 2021 half’s figure of $US113.54 a tonne.

And its reported average copper price for the half fell 19% to $US3.49 a pound from $US4.31 a pound in the same period of 2021.

The two price falls confirm that BHP will, like Rio Tinto (and Fortescue Metals), be reporting sharply weaker earnings in next month’s results.

For the three months to December, BHP reported iron ore production of 65.8 million tonnes at its WAIO business (WA Iron Ore), which was up 3% quarter on quarter but only up 1% on the December 2021 quarter. Total production on a 100% basis (including shareholders in the mines) was 74.29 million tonnes.

Shipments for the quarter totalled 65 million tonnes (for BHP) and 72.68 million tonnes (on a 100% basis).

BHP said the improvement resulted from record production at WAIO in the month of December thanks to strong supply chain performance and reduced impacts of labour constraints and wet weather.

This means for the first half, BHP achieved record iron ore production of 132 million tonnes which represents a 2% increase over the prior corresponding period in 2021. Production at the 100% level (including its partners) was a record 146 million tonnes.

Shipments for the half year totalled more than 126.7 million tonnes for BHP alone and 143 million tonnes for BHP and its partners. Both were slightly lower than the figures for the December, 2021 half year.

BHP said its 2022-23 production guidance remained unchanged at 246 million to 256 million tonnes (for BHP alone) and 278 to 290 million tonnes (on a 100% basis which includes the partner shares)

BHP said copper production came in at 424,300 tonnes for the second quarter, up 3% quarter on quarter and 16% year on year.

This was driven by higher volumes at the huge Escondida mine in Chile, due to higher throughput, higher concentrate volumes at Spence (in Chile) reflecting the ramp up of the Spence Growth Option, and a strong rise in volumes at Olympic Dam as a result of planned refinery maintenance in the prior period.

For the six months to December 31, BHP said copper operations delivered production of 834,400 up 12% year on year.

BHP said its metallurgical (or met coal which is used in steelmaking) and energy (thermal) coal production improved in the December quarter.

BHP reported met coal production of 7 million tonnes (up 4% quarter on quarter) and energy coal production of 2.9 million tonnes (up 9% quarter on quarter).

The company said its met coal production growth was driven by higher volumes due to improved strip ratios and the planned longwall move at Broadmeadow in the prior period, partially offset by continued significant wet weather.

This took its first half met coal production to 13.6 million tonnes, up 55 from the six months to December 2021.

BHP’s higher energy coal volumes was the result of improved operating conditions, including less wet weather, Covid cases and reduced labour shortages in the quarter, partially offset by planned wash plant maintenance completed in November.

For the half year, BHP’s energy coal production fell 24% to 5.5 million tonnes because of the weak September quarter performance.

Finally, BHP’s nickel production fell 14% in the quarter to 17.7,000 tonnes due to planned maintenance. This saw its half-year nickel production falling 2% to 38.4,00 tonnes.

The only small changes that have been made to guidance were for Escondida and BHP Mitsubishi Alliance (BMA) trending to the low end of their respective guidance ranges.

BHP left its full-year unit cost guidance mostly unchanged for Escondida and WAIO (a slight rise at the top end).

However, unit costs for BMA and New South Wales Energy Coal (NSWEC) have been increased, largely reflecting production impacts from significant wet weather and inflationary pressures.

BHP CEO, Mike Henry, was positive on the second half thanks to China’s reopening, saying the company “believes China will be a stabilising force when it comes to commodity demand in the 2023 calendar year, with OECD nations experiencing economic headwinds.”

“China’s pro-growth policies, including in the property sector, and an easing of COVID-19 restrictions are expected to support progressive improvement from the difficult economic conditions of the first half. China is expected to achieve over 1 billion tonnes of steel production,” he said confidently.

BHP shares rose 1.2% to $49.68.

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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