BHP reviews Olympic Dam output as it retains full-year guidance

BHP has flagged a review of output from the SA mine, as it provides its most upbeat take on global conditions in years.

On site at Olympic Dam, BHP Billiton. Copper, gold, uranium mine in South Australia. (Aaron Bunch/BHP)

BHP Billiton has given its most upbeat view on global conditions in years, saying markets look to be rebalancing and flagging strong cashfow this financial year. But, in its September quarter production report released this morning, the big miner has warned that South Australia’s state-wide power blackout that put its big Olympic Dam copper and uranium out of action is likely to reduce production guidance.

Importantly, BHP (BHP) hit first-quarter expectations and kept guidance for its iron ore and coking coal units, where prices have been stronger than expected.

“We have seen early signs of markets rebalancing,” BHP chief Andrew Mackenzie said this morning in the company’s first-quarter production report.

“The combination of steadier markets, continued capital discipline, improved productivity and increased volumes in copper, iron ore and metallurgical coal should further support strong free cash flow generation this financial year.”

He said iron ore and coking coal prices had been stronger than expected but that BHP still expected short-term supply to grow faster than demand for both commodities.

“Fundamentals suggest both oil and (US) gas markets will improve over the next 12 to 18 months,” Mr Mackenzie said.

The company hit market expectations for iron ore, coking coal and petroleum production but fell short in copper, despite the South Australian power failure happening only two days before the end of the quarter.

In the three months to September 30, BHP’s oil output slid 15 per cent from a year earlier to 55 million barrels of oil equivalent, copper production weakened 6 per cent to 355,000 tonnes, iron ore output was flat at 58 million tonnes (BHP’s share) and metallurgical coal rose 1 per cent to 11 million tonnes.

Analysts had expected the big miner to produce more than 400,000 tonnes of copper.

But maintenance and the blackout at Olympic Dam cut output by 26 per cent to 41,000 tonnes, while at Chile’s giant Escondida mine, production fell 19 per cent from the previous quarter to 218,000 tonnes because of lower grades, water availability and maintenance.

“Power has safely been restored at Olympic Dam and operations are in the process of recommencing and expected to be fully ramped-up in the December 2016 quarter,” BHP said.

“Guidance for the 2017 financial year of approximately 200,000 kt is under review following the power outage.”

At Pampa Norte, also in Chile, an ore handling plant is expected to be out for two months after failure of a transfer chute.