BHP Billiton flags end of commodities downturn
BHP Billiton has given its most upbeat outlook for global commodities in years.
BHP Billiton has given its most upbeat outlook for global commodities in years as confidence grows within the mining and petroleum industries that the worst of a five-year downturn is behind us.
After Fortescue Metals Group chairman Andrew Forrest last week said the bottom had been hit, and amid stronger-than-expected prices for coking coal and iron ore, BHP chief Andrew Mackenzie yesterday agreed things were starting to improve.
“We have seen early signs of markets rebalancing,” Mr Mackenzie says 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.”
The quarterly production effort itself was not one of BHP’s best, with copper output missing analysts’ estimates.
On top of this quarter’s miss, BHP is reviewing copper production guidance in the wake of the South Australian power blackout that stopped production at the Olympic Dam mine two days before the end of the quarter.
Coking and thermal coal also missed some analysts’ expectations.
“September quarter production was weaker than expected, except for petroleum, although there has been no change to guidance, other than the impact of the electricity outage in South Australia’s impact on Olympic Dam,” Citi analyst Clarke Wilkins said.
Mr Wilkins cut his full-year underlying net profit estimate by 1.4 per cent to $US6.74 billion because of the copper miss.
BHP shares fell 17c, or 0.8 per cent, to $22.47 yesterday on an otherwise upbeat day for mining stocks. Rio Tinto rose 13c to $50.74, with its gains likely limited because it is BHP’s partner at the big Escondida mine in Chile, the performance of which was part of the reason for BHP’s quarterly copper miss.
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 BHP to produce more than 400,000 tonnes of copper but maintenance and the blackout at Olympic Dam cut output by 26 per cent.
At Escondida, 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 tonnes (from Olympic Dam) 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 the failure of a transfer chute.
BHP revealed what appear to be problems at its Burrokeet well, started on August 10, off Trinidad and Tobago, where it is chasing a major oil discovery. It said the original well had been suspended and was waiting to be plugged and abandoned.
A second well, Burrokeet-2 had been started on August 18 and was still drilling, BHP said.
Earlier this month, BHP petroleum chief Steve Pastor told Australian journalists that the Burrokeet well was “going quite well” and was “a couple of thousand feet” of its target depth.
BHP was yesterday unable to say why the Burrokeet well had been abandoned.
The company revealed that the Stuart Shelf that extends from Whyalla to almost Lake Eyre, had become one of its five global focus areas for minerals exploration.
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