BHP Billiton is facing production and sales problems at its highly profitable Bowen Basin coking coal mines for much longer than previously thought.
The company, which owns the Bowen Basin operations with Mitsubishi of Japan, told the ASX yesterday in its March quarter production report that delays to returning to full production and sales would occur for much of the rest of this year.
"The Bowen Basin has been significantly affected by persistent wet weather for a large part of the 2011 financial year that continues to delay recovery efforts, particularly for the large open cut operations.
"At Queensland Coal (Australia), resultant in-pit water accumulation has severely restricted overburden removal and broader mining activities.
"Force majeure remains in place for the majority of our Bowen Basin products with production, sales and unit costs likely to be impacted, to some extent, for the remainder of the 2011 calendar year," BHP said.
That’s much longer than the company has previously told the market, but despite that BHP shares rose 56c, or 1.2%, yesterday to $47.23 as investors instead focused on the better than expected iron ore performance in Western Australia.
The heavy rains and flooding from earlier in the year saw coking coal output in the Bowen Basin in Queensland fall 18% from the same quarter in 2010 to 6.67 million tonnes, and 14% fall from the December quarter.
Year to date production at 24.75 million tonnes is down 6% on the first nine months of the 2010 financial year.
Sales of coking coal from the Bowen Basin mines slumped by 30% to 4.570 million tonnes in the March 2011 quarter from the 6.577 million tonnes shipped in the March 2010 quarter.
For the year to date coking coal shipments from Queensland are down more than 15% at 20.56 million tonnes from 22.285 million a year ago.
To show how far sales have fallen, in the June quarter of last year, more than 9.7 million tonnes of coking coal was shipped from the Bowen Basin mines against the 4.57 million of the March quarter this year; that’s a fall of more than 50%.
Higher prices, especially this quarter, will go someway to offsetting the impact of the lower production and sales.
BHP reported a rise in coking coal production and sales from its Illawarra mines south of Sydney, but the improvement was in the hundreds of thousands of tonnes and not nearly enough to make up for the shortfall from the Bowen Basin mines.
Rivals like Rio Tinto, Curragh (Wesfarmers), Xstrata and Macarthur Coal have all reported sharp falls in Queensland coal exports for the March quarter, so BHP is not alone.
Energy coal production rose 6% to 17.54 million tonnes from the prior quarter and 7% from a year earlier, reflecting a successful ramp-up and use of recently commissioned Newcastle Coal Infrastructure Group port capacity and, importantly, the absence of any bad weather problems in NSW and South Africa where much of the company’s thermal coal business is located.
On the other side of the ledger BHP outperformed the much larger iron ore rival, Rio Tinto.
Rio reported a 3% fall in global iron ore production and a 6% drop in sales from its huge mines in the Pilbara.
BHP lifted sales in the March quarter by more than 8% to more than 35.6 million tonnes from the Pilbara (a record) and by 6% for the nine months to March to more than 105 million tonnes (also a record).
Production was down 1% in the quarter on March of last year, but up 6% over the nine months so far.
With iron ore prices at or near all time highs in the March quarter, BHP did better than Rio did in taking advantage of them.
That would have been part of the reason why BHP shares rose yesterday, despite the bad news from the Queensland coal business.
Overall, the company’s third quarter production of petroleum, iron ore, most base metals and coking coal dropped off slightly due to adverse weather.
But the world’s biggest resource company achieved record production figures in iron ore, crude oil and condensate and manganese ore for the nine months to March, thanks to the high output levels of the two preceding quarters.
BHP said total petroleum products in the March quarter fell 4% from the prior quarter to 35.79 million barrels of oil equivalent as permitting delays in the Gulf of Mexico and tropical cyclones in Western Australia hit operations (which hit Woodside).
BHP said it achieved record production for crude oil and condensate for the nine months to March reflecting strong performances at the Pyrenees field in Australia and the Shenzi field in the Gulf of Mexico in the US.
Iron ore production eased just 1% to 33.2 million tonnes from the prior quarter due to seasonal weather. From a year earlier, production was up 7%
Among base metals, production in copper, lead and aluminium fell from the prior quarter. Zinc production rose.
Compared with a year earlier, copper production was up; aluminium was flat, while lead and zinc fell.
BHP expects petroleum output to fall next year because of drilling delays in the US Gulf of Mexico following the BP disaster a year ago in the Gulf.
