As expected (especially after Rio Tinto’s ((RIO)) first quarter production report a week ago), BHP Billiton (BHP) has reported a 20% drop in copper production for the quarter and the nine months to the end of March and cut its full-year production guidance by around 18% due to industrial action at its Escondida mine in northern Chile.
Like Rio, BHP blamed 44 days of industrial action in the nine months to March 31 pushed it to cut its full year guidance to between 1.33 million and 1.36 million tonnes – down from 1.62 million to 1.66 million tonnes outlined in January.
Iron ore production for the same period was up 3 per cent at 171 million tonnes, but BHP said damage to rail infrastructure in Queensland from Cyclone Debbie had forced it to cut its metallurgical (steelmaking) coal production guidance by 9% to between 39 million and 41 million tonnes.
Iron ore output guidance had been ’narrowed’ to between 231 million and 234 million tonnes, from between 228 million and 237 million tonnes.
BHP said record production at its iron ore mines Western Australia in the first nine months of 2017 was partially offset by wet weather in the March quarter. Rio Tinto and Fortescue Metals both reported lower production and exports in the three months to March as a result of the wet weather.
Yesterday’s announcement of the third quarter production and sales report came three weeks after the company started fending off a public campaign by activist hedge fund Elliott Advisors, which is pressing the miner to reform its corporate structure (by merging the UK and Australian arms and relocating to London) and spinning off its oil division.
BHP has rejected the proposals as “financial engineering” and noted there were major flaws in Elliott’s restructuring plan, especially as it relates to the Australian shareholding base which derives billions of dollars a year in benefits from dividend imputation.
In comments accompanying the quarterly report BHP CEO, Andrew MacKenzie, the company was not standing still and that everything the company does is “designed to create value for all our shareholders”.
“We have significantly reduced the capital intensity of our growth options and changed our approach in shale to improve returns and lower risks on new investments,” he said.
BHP said it was progressing the sale of onshore US petroleum interests at two key fields:
“Divestment of non-core onshore US acreage is progressing, with the sales process well advanced for up to 50,000 acres of the southern Hawkville," BHP said in its fiscal third-quarter operations report. And BHP said its (gas rich) Fayetteville field is under review and that it was “considering all options including divestment.
And the company repeated its case against the Elliott proposals in yesterday’s report.
"On 10 April 2017, BHP Billiton received a letter from Elliott Associates, L.P. and Elliott International, L.P. (Elliott). The letter outlined a proposal for changes to BHP Billiton Group’s Dual Listed Company (DLC) structure, portfolio and capital management.
“Having reviewed the elements of Elliott’s proposals, the Board has concluded that the costs and associated disadvantages of Elliott’s proposal would significantly outweigh the potential benefits and that Elliott materially overstates the potential value that could be created by its proposals.
"We have outlined our clear roadmap to maximise the value of our assets. We continue to make strong progress across our six focus areas for value creation, underpinned by our Capital Allocation Framework which balances the need to invest in our business, create the strength and flexibility to take advantage of opportunities as they arise and to efficiently return capital to our shareholders.
"We are confident that our strategy is in the best long-term interests of all shareholders.
The company said yesterday that "Productivity has continued to improve across our operations and we see significant potential for further gains. For example in coal, record production was achieved at five Queensland mines supported by increased wash-plant utilisation, while truck utilisation also improved at New South Wales Energy Coal.”
"We approved the high-return Caval Ridge Southern Circuit project in March 2017 and the Los Colorados Extension project is expected to ramp-up in the September 2017 quarter. Spence is now operating at 200 ktpa following the completion of the Spence Recovery Optimisation project in December 2016.
"The board approved the Mad Dog Phase 2 project in the deepwater Gulf of Mexico in February 2017. We also executed the contract with Pemex to acquire a 60 per cent participating interest in, and operatorship of, the Trion discovery in Mexico in March 2017.
"In Petroleum exploration, following positive drilling results at the LeClerc well in Trinidad and Tobago, commercial evaluation of the gas discovery is well advanced. Drilling of the Wildling appraisal well in the Gulf of Mexico is continuing with results now expected in the September 2017 quarter, which will assist with establishing the scale of the Caicos oil discovery.
"In technology, replication of the WAIO Integrated Remote Operations Centre in Brisbane for our Australian coal operations was completed in February 2017 and will support lower operating costs.
BHP shares rose 0.5% to $24.08.
