While BHP shipped a record-breaking amount of iron ore from its Pilbara mines in the year to June, the performance of its coking coal, copper, oil and gas and nickel businesses also stood out.
Much of the coverage was on the strong efforts at the company’s West Australian Iron Ore operations in the Pilbara which had a smoother experience than did rival Rio Tinto, especially in the closing months of the financial year.
And while the record production and exports of iron ore saw BHP take advantage of prices which hit record highs in May and remained above $US200 a tonne through to the end of the financial year, the prices of copper, nickel and coking coal also did well – especially the latter which rebounded from 2020’s big slide.
And yet investors didn’t like the data and BHP shares fell another 2% plus yesterday, closing at $49.24. That’s 5.1% lower than the all-time high hit last Thursday of $51.91.
BHP made clear in its June production report that it met full year production guidance for copper, metallurgical coal and nickel, as well as iron ore in the 12 months, overcoming all the difficulties of Covid, bad weather, volatile economies and political problems, especially in China.
For the 12 months ended to June 30, BHP said it achieved record production at Western Australia Iron Ore (WAIO) and the Goonyella Riverside hard (metallurgical) coking coal mine in central Queensland.
Also performing strongly was its Olympic Dam operation, which achieved both the highest annual copper production since its acquisition in 2005 (from WMC) and the highest gold production ever for the operation.
Over at Escondida, BHP said it maintained average concentrator throughput at record levels despite a challenging operating environment in Chile as a result of impact from COVID-19. Its Peruvian copper mining operations were impacted though.
This led to iron ore production of 251.5 million tonnes; petroleum production of 102.8 million barrels of oil equivalent and copper production of 1.635 million tonnes. Iron ore and copper were in line with guidance, whereas BHP said petroleum was slightly above guidance for FY 2021.
BHP also enjoyed strong pricing during the year and looks set to report bumper free cash flow in August.
It revealed that its average petroleum price received increased 6% to $US52.56 per barrel, copper rose 52% to $US3.81 per pound, (it’s now above $US4.20 a pound and iron ore increased 69% to $US130.56 per wet metric tonne – its now above $US200 a tonne).
Nickel prices though jumped 41% to $US16,250 average in 2021 and is now well over $US17,500 a tonne.
On top of this BHP said that its about to be sold energy (thermal) coal business met revised guidance for energy coal, with prices almost doubling in June from a year earlier.
BHP also said its Jansen potash first stage project in Canada is ready for a decision on whether to go ahead “in the next two months”.
The BHP also signalled that the about to be sold NSW energy coal (NSWEC) business will be written down in value when the annual profit and accounts are released in mid-August.
“The broader carrying value assessment of the Group’s assets is ongoing with a particular focus on Jansen (the Canadian Potash business) and NSWEC, and will be finalised in conjunction with the release of the financial results on 17 August 2021,’ the company said on Tuesday.
BHP said had produced a total of 73.7 million tonnes of iron ore (including the share of its partners) in the three months to June 30 – about 4% less than the same time last year, thanks to labour shortages, COVID-19 travel restrictions and bad weather.
BHP’s share of production in the quarter was just over 64 million tonnes, down from the 66.73 million tonnes in the June, 2020 quarter. BHP’s quarterly sales were 65.22 million tonnes in the three months to June, down from 68.15 million tonnes.
BHP’s full-year iron ore output rose to 284.1 million tonnes (on a 100% basis which includes the share of production of partners in the mines).
The result was at the top end of the company’s target of between 276 and 286 million tonnes for the year (on a 100% basis).
BHP has set a similar range – 278 million to 288 million tonnes for 2021-22 production (on a 100% basis).
For itself (ie BHP’s share of those figures), the company said total iron ore production from the Pilbara increased 2% to 251.5 million tonnes with 2021-22 forecast production of between 249 and 259 tonnes.
BHP’s share of 2020-21 sales was 252.05 million tonnes, up from 250.6 million tonnes on the year to June, 2020. Total sales on a 100% basis in 202021 were all but unchanged – 283.7 million tonnes against 283.56 million tonnes the year before.
“BHP is in great shape,” CEO Mike Henry said in Tuesday’s report.
“Our operations are performing well, we continue our track record of disciplined capital allocation, and our portfolio is positively leveraged to the mega-trends of decarbonisation, electrification and population growth.”
The company completed a number of projects towards the end of the June year, while two others came on line and are now producing.
“The Atlantis Phase 3 petroleum project and the Spence Growth Option copper project achieved first production in the first half of the 2021 financial year.
“During the June 2021 quarter, the South Flank iron ore sustaining project in Western Australia and the Ruby oil and gas project in Trinidad and Tobago achieved first production. Given this, South Flank and Ruby project progress will not be reported in future Operational Reviews.
“At the end of the 2021 financial year, BHP had two major projects under development in petroleum (Mad Dog Phase 2) and potash (Jansen mine shafts), with both of these tracking to plan.
“The Jansen Stage 1 project in Canada remains on track for a go or no-go decision in the next two months,” BHP said in its report on Tuesday.
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Looking ahead to 2021-22 BHP’s guidance is for relatively flat production across its key commodities. Iron ore is expected to be 249 million tonnes to 259 million tonnes, a range from a 2% decline to 2% increase on FY 2021.
Copper is expected to be between 1.590 million tonnes to 1.760 million tonnes which would be a 3% decline to 8% increase year on year.
And petroleum is forecast to be 99 million barrels of oil equivalent (MMboe) to 106MMboe, which would be a 4% decline to 3% increase.
So far as earnings are concerned it looks like a record.
BHP earned $US9.8 billion in the December half (underlying earnings before interest, tax, depreciation and amortisation totalled $US14.7 billion) with prices of all key commodities much lower in the half than they were in the six months to June, especially iron, ore copper and oil.
In the year to June 2020, BHP reported a full year profit of $8 billion (which was blown away by the 2020-21 first half result) and underlying EBITDA of $US9.1 billion (which was also blown away).
The company could very well be looking at net earnings around $US20 billion and underlying EBITDA topping $US30 billion and quite capable of paying record dividends and the cleaning up of asset values at the NSW energy coal and Colombian coal businesses and rightsizing the costs at the Jansen potash project.
2021-22 could be a very different story – one of marking time, especially with world economic activity set to slow, led by China.
