BHP saved the market from a weakish day after surprising with an upbeat set of numbers for its production and sales effort for the June quarter and 2017-18, and a forecast for more of the same in the coming year.
BHP said in its production review it produced more iron ore than the market (and it had in April) had forecast in the year to June (as did other global majors, Rio Tinto and Vale of Brazil).
A confident forecast of a rise of around 3% in iron ore production for the current year helped push the BHP share price up more than 3.3% on the day to $33.57.
The news saw analysts tip a boost to the final dividend from 43 US cents a share last year. The interim for this year was 55 cents, so something north of that will be announced, as well as some sort of capital management initiative later in the year once the us shale assets are sold.
BHP however revealed it would book a $US440 million charge related to the Samarco dam disaster in Brazil, with possibly other charges.
The company also confirmed it had received bids for its US shale assets, and expected to “announce one or more transactions within the coming months”. UK major, BP has already been reported as the most likely with a bid for all the assets of around $US10 billion.
But a stronger than expected performance in the June quarter saw the company produce 275.09 million tonnes in the year and achieve its original guidance.
BHP said its iron ore production would be between 273 million and 283 million tonnes in fiscal 2019, suggesting the division could grow output by a maximum of 3% or a bit more.
BHP said it was producing at an annualised rate of 289 million tonnes in the June quarter, suggesting it is moving towards its goal of producing 290 million tonnes a year.
As a result BHP shipped 273.2 million tonnes from the Pilbara in the year to June, including volumes owned by joint venture partner – about 2% higher than the year before 2016-17. The average price though was down 3% over the year from $US58.42 for 2016-17 to $US56.71 for 2017-18.
The Samarco iron ore business in Brazil remains closed in the wake of the 2015 dam collapse which killed 19 people and destroyed nearby towns. BHP said its 2017-18 financial results would include a $US440 million charge reflecting the updated estimates of such costs.
"This charge largely reflects updated assumptions relating to the continuation of the fishing ban, the number of eligible claimants and the timeline and technical scope for resettlement of the communities," said BHP in a statement.
The charge will take BHP’s total Samarco charges in fiscal 2018 to $US650 after the company reported $US210 million worth of costs in the first half.
BHP’s petroleum division (which US hedge fund, Elliott Management wants the company to spin-off or sell) also beat guidance by producing 192 million barrels of oil equivalent in the year; above the 190 million barrels forecast.
The petroleum division also has a significant exploration campaign underway, and BHP reported some encouraging results in its report – a well in Trinidad and Tobago territorial waters had encountered gas, while an exploration well near the Wildling prospect in US territorial waters had "encountered hydrocarbons in multiple horizons not previously observed" by the previous Wildling well.
Full year production guidance was achieved for coking coal, thermal coal and copper.
Coking coal prices were stronger through 2017-18 (after soaring late in 2016-17 thanks to the impact of Cyclone Debbie on the central Queensland coal mines and railroads).
While BHP did not achieve its original goal of producing between 44 million and 46 million tonnes during the year, it still achieved record production of 43 million tonnes as restarting flooded mines and wrecked rail facilities took longer than expected. Those delays helped keep coking coal prices higher for longer.
BHP received an average price of $US177.22 for its coking coal in the year, which was nearly 9% better than 2016-17’s price.
BHP hopes to produce between 43 million and 46 million tonnes of coking coal over the next year, but that target could be be in doubt if rail operator Aurizon limits rail capacity as part of its dispute with the Queensland government.
BHP said that its copper performance was better than expected with a return to company-wide production growth, measured in “copper equivalent” terms. That halted several years of falling output because of work and lower grades, especially at Escondida in Chile and Olympic Dam in Australia.
The biggest contributor to production growth in fiscal 2018 was the copper division and especially Escondida, where production jumped 57% from 2016-17. That helped total copper production for the 2018 financial year to rise 32% to 1.732 million tonnes.Total copper production for 2018-19 will be at a similar level of between 1.675 million and 1.770 million tonnes.
The average copper price jumped 23% in 2017-18 to $US3.12 a pound from $US2.54 the year before. prices have fallen sharply in recent weeks as the US China trade dispute and are currently around $US2.70 a pound, still above the average price for the year before. Coking coal prices have also fallen by around 15% in the past fortnight thanks to the US China dispute.
