BHP Billiton’s (BHP) production of iron ore and metallurgical coal for the first half of the 2016-17 financial year is up, but volumes dropped in its petroleum, copper and thermal coal businesses.
The December quarter and half year production report, out on Wednesday, showed the resources giant produced 118 million tonnes of iron ore in the six months to December 31, up 4% from a year ago, but copper output fell 7% following disruptions at Olympic Dam in South Australia, and petroleum output fell 15% as it cut back on shale gas development in the US.
The company has maintained its full-year production guidance for iron ore, coal and petroleum, but has cut its copper output forecast by 2% to reflect lower volumes at Olympic Dam and lower grades at the massive Escondida mine in Chile.
But the report shows that BHP was able to cash in on surging iron ore prices, boosting output here to record levels in the December quarter.
Iron ore output hit a record 60 million tonnes in the quarter, up 9% from the same period a year earlier as it benefited from the ramp-up in output at the Jimblebar mine which also allowed it to access the rebound in prices recorded in the quarter.
The price of iron ore received by the miner hit $US55 a tonne in the quarter, up 28% year on year, which will give the company’s operating profit a big boost when reported next month.
Iron ore sales rose 4.8% to 134. 56 million tonnes in the six months (69.2 million in the December quarter, up 9% from the 63.6 million in the December, 2015 quarter) from 130.8 million. That means the loss of sales from the Samarco mine in Brazil was easily covered by the Pilbara operations.
That means BHP is looking at a 4.8% rise in sales for the six moths (and nearly double that in the December quarter) and a 28% surge in the average price.
But BHP also saw sharp rises in the prices of its coal shipments which more than doubled to $US179 a tonne (one a 1% rise in production for the half year) and the price of steaming coal which rose 51% to $US74 a tonne which will offset a 4% drop in production.
Petroleum division output fell 15% from a year earlier as it waits for prices to improve. The drop here was directly in line with the 15% drop seen in the September quarter.
With copper, BHP said it has cut its production forecast 2% to 1.62 million tonnes due to an extensive power outage at the Olympic Dam project in South Australia. In the half, copper output declined by 7% to 712,000 tonnes.
BHP Billiton Chief Executive Officer, Andrew Mackenzie, said in the statement: “We have performed well during a period of higher prices, with record iron ore volumes achieved at WAIO. Our simpler organisational structure has freed our assets to focus on what matters most and to deliver safer and more productive operations.
"Our consistent delivery of operating and capital productivity, and strict adherence to our capital allocation framework have positioned us to maximise shareholder value.
“In Petroleum, we will accelerate our counter-cyclical oil exploration efforts this year. Our successful Trion bid leaves us in a leading position to develop the newly opened Mexican acreage in the Gulf of Mexico, where we can leverage our core expertise.
"We are encouraged by recent positive drilling results at the LeClerc well in Trinidad and Tobago and the Caicos well in the Gulf of Mexico. After the first successful rig, our Onshore US gas hedging program will also be expanded to secure attractive returns.”
BHP said it alsi expects Underlying attributable profit in the December 2016 half year to include gains related to asset divestments in a range of approximately US$150 million to US$200 million (Underlying EBITDA impact of US$175 million to US$225 million).
"In addition, the Group expects to record an exceptional item of US$164 million (US$115 million post-tax) related to the cancellation of the Caroona exploration licence and subsequent reimbursement received during the December 2016 half year.
"On 20 December 2016, Samarco, Vale and BHP Billiton Brasil agreed a non-binding term sheet outlining the general terms and conditions for the use of Vale’s Timbopeba pit by Samarco to deposit its tailings, should Samarco restart. A definitive agreement remains subject to a successful commercial negotiation, due diligence and relevant government approvals. These processes are likely to occur during the 2017 calendar year.
"On 18 January 2017, Samarco, Vale and BHP Billiton Brasil have also entered into a preliminary agreement with the Federal Prosecutors’ Office in Brazil in relation to the Fundão tailings dam failure on 5 November 2015 (Preliminary Agreement). The Preliminary Agreement outlines the process and timeline for negotiation of a settlement of the BRL 155 billion (approximately US$47.5 billion) Civil Claim relating to the dam failure.
"For the December 2016 half year, we are not yet in a position to provide an update to the ongoing potential financial impacts on BHP Billiton Brasil of the Samarco dam failure. Any financial impacts will continue to be classified as an exceptional item.”
