20th Apr 2016 08:31
LONDON (Alliance News) - BHP Billiton PLC Wednesday said it has trimmed its full-year production guidance for iron ore after being hit by a string of issues, as the company reported a fall in production across all of its major commodities in the first nine months of its financial year.
BHP shares were trading up 3.0% to 993.10 pence per share on Wednesday morning.
BHP has managed to maintain its guidance for its other major commodities, including petroleum, copper and coal, but said iron-ore production from its operations in Western Australia will be around 10.0 million tonnes lower in 2016 than previously expected.
BHP said the downward revision was due to adverse weather conditions, referring to Cyclone Stan back in January, and because of the launch of an "accelerated rail network maintenance programme".
As a result, BHP has cut guidance from its iron-ore operations in Western Australia to 260.0 million tonnes from the original 270.0 million target.
That follows on from peer Rio Tinto PLC trimming its production guidance on Tuesday from its own iron-ore operations in the region by 10.0 million tonnes in 2017, but Rio retained its production guidance for 2016.
BHP said that, although it has cut its guidance, the work being carried out on the rail network will eventually lead to the system capacity increasing to 290.0 million tonnes per year "over time".
The bad news from Western Australian compounds the impact for BHP of the absence of production from the Samarco iron-ore joint venture in Brazil with fellow giant Vale SA, as operations there remain suspended following the fatal dam disaster in November last year.
BHP reported lower production of all of its commodities in the first nine months of its current financial year compared to a year earlier, which was expected by the market as the company has offloaded assets and deferred investment in its portfolio.
Iron ore production in the nine months to the end of March was 1% lower than a year earlier, totalling 171.0 million tonnes, as "record volumes" from its operations in Western Australia were offset by the suspension at Samarco.
Adding to that, petroleum production was 4% lower than a year earlier at 184 million barrels of oil equivalent per day, copper production was 8% lower at 1.2 million tonnes, metallurgical coal production was 1% down at 31.0 million tonnes, and thermal coal production was down 10% from the previous year at 27.0 million tonnes.
Petroleum production was reduced as development activity onshore the US was deferred, whilst copper production fell as a result of lower grades at the Escondida mine in Chile offsetting increased throughput at the site's plant.
In terms of coal, metallurgical coal production fell in the first three quarters due to the planned closure of the Crimum mine in Australia, whilst thermal coal production dropped because of unfavourable weather conditions and the divestment from the San Juan mine in New Mexico.
With the end of the financial year approaching in June, BHP said it still expects to produce 237.0 million barrels of oil equivalent per day over the full year, 1.5 million tonnes of copper, 40.0 million tonnes of metallurgical coal, and 37.0 million tonnes of thermal coal.
"Over the last 12 months, we have taken a number of steps to strengthen BHP Billiton, including asset sales and the deferral of investment for long-term value. While these measures will reduce our output this year, they have increased our focus on our highest-quality operations and will support stronger margins and returns," said Chief Executive Andrew MacKenzie.
On a more positive note, BHP said it remains on track to improve unit costs across its major assets by around 14% for the full financial year, as it continues to battle lower commodity prices.
The company said it has decided to launch a USD640.0 million programme covering exploration within the petroleum division before the end of the current financial year. To put that into context, exploration expenditure within the division amounted to only USD390.0 million in the first nine months of the year.
BHP said capital expenditure within the petroleum division will amount to USD2.70 billion for the full year.
Overall, BHP currently has four major projects under development across its portfolio, specifically petroleum, copper and potash, with a combined budget of USD6.90 billion over the life of the projects.
"Debottlenecking our assets at very low cost will generate high returns and substantial value. We have a pipeline of projects in copper and oil that allow us to bring high-margin volumes to market when the time is right. And as others cut back on exploration, our investment will go further and help create new options for the future," said MacKenzie.
By Joshua Warner; [email protected]; @JoshAlliance
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