BHP Billiton posts record WA iron ore production but misses forecasts
A 15pc fall in BHP oil and gas output will be offset by a ramp up of WA mines, after iron ore production missed targets.
BHP Billiton has flagged a 15 per cent drop in oil and gas production this financial year, its second straight annual fall, as it cuts spending and reduces drill rigs at the US shale operations it has so far spent more than $US35 billion buying and developing.
The announcement came in a mixed production report for the miner that helped drive its shares down 4 per cent in early trade.
The fall in oil production will be offset by a ramp up of the big miner’s West Australian iron ore mines, railways and ports, which are flagged to hit production capacity of 290 million tonnes in 2018-19, up from 257 million in 2015-16 (including minority partners’ share). WA iron ore guidance of 265 to 275 million tonnes for this financial year, released today, is also above analyst expectations.
In its fourth-quarter report, released today, BHP (BHP) recorded iron ore production for the full-year just shy of its guidance, while announcing a $175 million hit to underlying profit owing to impairment and restructuring charges.
The group did, however, outperform its projections on copper and petroleum output.
BHP’s Houston-based petroleum unit produced 56 million barrels of oil equivalent in the fourth-quarter, down 6 per cent from the previous quarter and bringing full year production to 240 million barrels. This was in line with expectations and ahead of guidance of 237 million barrels.
But the company said it would cut oil and gas production to between 200 million and 210 million barrels this financial year, well below Deutsche Bank expectations of 223 million barrels.
In the June quarter in WA, BHP produced 65 million tonnes of iron ore (including the share of minority partners), in line with expectations, but bringing full-year production to 257 million tonnes, just shy of guidance of 260 million tonnes.
But this financial year’s guidance of 265 to 275 million tonnes was ahead of Deutsche expectations of 265 million tonnes. And BHP’s revelation today that it intends to boost system capacity to 290 million tonnes in 2018-19, the first time it has given a date, will be ahead of many expectations.
“In petroleum, we have delivered strong performance from our conventional assets and responded to market conditions by reducing the number of rigs in our onshore US assets as we focus on cash flow and value,” BHP chief Andrew Mackenzie said in the company’s fourth-quarter operations report.
“Over the next 12 months, we expect volumes and costs across our minerals businesses to benefit from our continued drive to safely improve productivity. We can create significant value through further cost reductions, taking advantage of latent capacity in our assets and investing in low-capital projects.
“These initiatives are expected to grow production by five per cent in copper, up to four per cent in iron ore and three per cent in metallurgical coal in the next financial year.”
It was not just the cuts in US onshore that will lead to the fall this year. BHP said natural field decline at its conventional business, and the sale of gas assets in Pakistan, would also hit production. US onshore capital spending will be just $US600 million this financial year, down from $US1.2bn in 2015-16.
For the full-year to June 30, BHP’s share of iron ore output dipped 2 per cent to 227 million tonnes, short of its own forecasts for 229 million tonnes. The group now expects a slight lift to 228-237 million tonnes in FY2017.
The decline was driven by the temporary closure of its Samarco joint venture in Brazil following last year’s disastrous collapse of a tailings dam which killed 19 people and polluted hundreds of kilometres of rivers.
The mining giant’s attributable iron ore output for the fourth quarter came in at 55.6 million tonnes, just short of market expectations for 56.8 million tonnes.
On a 100 per cent ownership basis, shipments from the giant miner’s flagship Pilbara operations lifted 5 per cent quarter-on-quarter to 64.6 million tonnes, broadly in line with expectations for 65 million tonnes.
“Following a strong recovery from the wet season, WAIO produced at an annualised rate of 275 Mt in June 2016,” BHP said.
Meanwhile, the mining behemoth has taken a $175 million charge to underlying profit thanks to inventory writedowns, redundancies associated with its cost-cutting drive and impairments at its coal business.
BHP also said it would note a further $US150-$US200m ($200-$266m) charge relating to “global taxation matters”, which includes potential litigation.
The group added it was unable to quantify the potential financial impact of the Samarco tailings dam collapse as legal proceedings are not yet concluded.
Among its other commodities, BHP reported an 8 per cent drop in full-year copper output to 1.58 million tonnes, which was in line with expectations.
The numbers topped the group’s forecasts for 1.5 million tonnes.
Fourth quarter copper production outdid market expectations.
The group expects copper production to jump 5 per cent in FY2015.
At the company’s Queensland coking coal mines, quarterly production of 12 million tonnes brought full-year production to 43 million tonnes, up from guidance of 40 million tonnes. This year, production is forecast to be 44 million tonnes.
At 10.55am (AEST), BHP shares were trading down 4.1 per cent at $19.02, against a flat broader market.
