BHP lifts iron ore output guidance amid global forces warning
CEO Mike Henry warned the miner is still weighing the impact of the windfall royalty hit on the life of its mines in Queensland.
BHP has warned it could review its investment plans in Queensland coal in light of the state’s royalty rate hike, saying it is still assessing the impact of the windfall royalty hit on the life of its mines in Queensland.
BHP said the new Queensland royalty rates, which include three new royalty tiers aimed at capturing extra revenue when the coal price surges, would lift its effective royalty payments to an effective pre-tax level of about 19 per cent of the coal price at the port, a lift of 7 per cent from current levels.
BHP chief executive Mike Henry said the company was still assessing the likely impact of the royalty changes, but said it threatened future investment in the state. “BHP is assessing the impacts on BMA economic reserves and mine lives as a result of the increase in coal royalties by the Queensland government,” he said. The near tripling of top end royalties has worsened what was already one of the world’s highest coal royalty regimes, threatening investment and jobs in the state.
BHP said the review of its BMA operations would include an assessment of its “impact on production, jobs and the communities of Central Queensland”. “This further cost pressure will discourage investment, operational growth, job creation and local business spending across the state,” BHP said on Tuesday.
BHP Minerals Australia boss Edgar Basto is expected to address the topic when he speaks at The Australian’s Strategic Business Forum on Wednesday.
BHP sold its share of its BMC coal operations to Stanmore Resources earlier this year, and said its BMA operations sold 17.2 million tonnes of coal for the June period, up about 2 million tonnes from a weather affected March quarter. Metallurgical coal sales were well down on the previous financial year, however, at 58.1 million tonnes, 9 per cent down on the 2020 to 2021 financial year.
BHP said it had taken a significant hit from wet weather across most BMA operations, without output and shipments also constrained by tight labour markets and mass absenteeism due to the spread of Covid-19.
But extraordinarily strong prices for BHP’s high quality coking coal will more than make up for production weakness, with the company reporting an average price of $US439.60 a tonne for its hard coking coal in the June half, and $US366.82 for the full year – more than 225 per cent above the $US112.72 it realised the previous financial year.
Even though coking coal prices have now fallen back to levels closer to $US250 a tonne, the Queensland government will capture a far greater share of that in the current fiscal year, however, given the three new royalty tiers include a 20 per cent rate for prices above $175 a tonne; 30 per cent for prices above $225 a tonne and 40 per cent for prices above $300 a tonne.
BHP lifted its iron ore output guidance slightly for the current year, after shipping 283.9 million tonnes of the steelmaking commodity last financial year.
BHP released its June quarter production report on Tuesday, saying it shipped 72.8 million tonnes in the period, slightly below the 73.7 million tonnes it shipped in the same period in 2021.
The financial year total is in line with analyst expectations of a 284 million tonne shipment figure, and easily within the company’s 278 to 288 million tonne guidance range.
BHP lifted guidance for the current financial year slightly, saying it expects to produce 278 to 290 million tonnes for the year.
BHP was paid an average $US112.65 a tonne at the port for its iron ore in the first half of 2022 – still above that of its main Pilbara rival, Rio Tinto, which said last week it was paid an average $US110.90 per tonne.
Copper output at BHP’s global mines softened, down four per cent for the full year to 1.57 million tonnes, although both its Escondida mine in Chile and South Australia’s Olympic Dam operation returned to form in the June quarter, with output up 28 per cent and 43 per cent respectively compared to the March period.
BHP said it expects a far stronger performance from its copper division in the current fiscal year, flagging expected production of 1.64 million tonnes to 1.83 million tonnes – an improvement of up to 16 per cent if BHP hits the top end of guidance.
The company said it had also reached a significant milestone in its plans to open a new potash business, completing the first shafts at its $US5.7bn Jansen mine in Canada, and saying it hoped to bring forward the opening date for the mine to late 2026.
Despite another strong operating result, however, Mr Henry warned the outlook for the mining giant’s markets remained weak.
“Broader market volatility continues and we expect the lag effect of inflationary pressures to continue through the 2023 financial year, along with labour market tightness and supply chain constraints,” he said in a statement.
“Over the year ahead, China is expected to contribute positively to growth as stimulus policies take effect, however, the continuing conflict in Ukraine, the unfolding energy crisis in Europe and policy tightening globally is expected to result in an overall slowing of global growth.”
BHP shares closed down 36c to $36.61 on Tuesday.
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