Oil, copper weigh on BHP’s iron ore growth

Prashant Mehra
(Australian Associated Press)

BHP Billiton has forecast further increases in iron ore production after meeting its targets for the financial year, but an extended strike at a Chilean copper mine will dent its bottom line.

Copper production fell 16 per cent to 1.32 million tonnes in the year to June due to a 44-day staff strike at the jointly-owned Escondida mine in Chile earlier in 2017.

Costs from the industrial action and idle capacity will result in BHP including an after-tax charge of $US740 million ($A935 million) in its full year profit.

Copper production is likely to rebound in 2017/18 as the company completes commissioning of the Escondida water supply project and the Los Colorados extension project in the September quarter, chief executive Andrew Mackenzie said.

The mining giant’s annual petroleum production dropped 13 per cent to 208 million barrels of oil equivalent (MMboe), because of a deferral of US shale gas development activity and a natural decline in conventional assets, though output was still within guidance.

The business has recently been the subject of controversy, with activist hedge fund Elliott Advisors calling for it to be demerged in order to unlock latent value.

Petroleum production is set to decline to between 180 and 190 MMboe in 2017/18 as a ramp up in development activity in its US shale operations is forecast to be more than offset by natural field decline.

BHP shares lost ground on the news, dropping 27 cents, or 1.1 per cent, to $24.83, with analysts ascribing this to the weaker outlook.

“Whilst the company expects a turnaround in its key copper unit, driven by Escondida, the weaker outlook for the US onshore division in FY18 will likely be a focus of investor pushback,” Royal Bank of Canada analyst Paul Hissey said.

“Unlike its major peer Rio Tinto, we would not expect the market to start anticipating additional capital returns from BHP.”

BHP’s iron ore output rose eight per cent in the June quarter, taking annual production to 231 million tonnes, up four per cent on the prior year.

It expects production to rise to between 239 million and 243 million tonnes in 2017/18.

Operations at the Samarco joint venture in Brazil remains suspended and BHP said it is not yet in a position to provide an update on the full year financial impact.

Annual metallurgical coal production dropped six per cent due to the impact of Cyclone Debbie in March, but output is set to increase by up to 15 per cent in 2017/18.

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