BHP Billiton production cuts not as bad as feared

With three months to go before its year-end, BHP Billiton downgraded its full year guidance for copper and metallurgical coal, but iron ore production was not too badly affected by Cyclone Debbie in Australia.

For the nine months to 31 March, the Anglo-Australian mining giant achieved record production at Western Australia iron ore and five Queensland coal mines, but as a result of damage to third party rail infrastructure caused by Cyclone Debbie in Australia, metallurgical coal production guidance has been reduced to between 39 and 41m tonnes.

The company, which has come under attack from activist shareholder Elliott Advisers earlier this month, maintained its full year production guidance for petroleum and energy coal but the Western Australian iron ore production guidance has been narrowed to between 268 and 272m tonnes.

Meanwhile in Chile, after 44 days of industrial action at the Escondida mine, BHP has lowered its copper production guidance to between 1.33m and 1.36m tonnes. The commissioning of the Escondida water supply project and the planned ramp-up of the Los Colorados extension project at the mine are now expected in to occur around September.

At Queensland Coal, the high-return Caval Ridge Southern circuit latent capacity project was approved and will enable the company to fully utilise the 10 metric tonnes per annum wash-plant with ramp-up early expected in the 2019 financial year.

In onshore US assets, development activity is increasing with the approval of two additional rigs in the Haynesville site, with gas prices hedged to deliver attractive rates of return, while the company is selling non-core onshore US acreage with the sales process advanced for up to 50,000 acres of the southern Hawkville.

The Fayetteville field is currently under review and the company is considering selling it.

The Mad Dog phase two conventional oil development project was approved and a contract was executed with Pemex Exploration and Production Mexico, after winning a bid to buy a 60% stake and operatorship of Trion in Mexico.

Commercial evaluation of the LeClerc gas discovery in Trinidad and Tobago is ongoing and drilling of the Wildling appraisal well in the Gulf of Mexico is also continuing to help with establishing the scale of the Caicos oil discovery.

Chief executive Andrew Mackenzie said the company has been “fundamentally” restructured to increase returns with the recent demerger of South32 and $7bn of divestments that have reduced the number of assets in the portfolio by over a third and the more focused portfolio has lowered unit costs by over 40%.

“This quarter we have added value to the portfolio across each of our six focus areas. We continued our targeted high-return investment in shale with the approval of two more rigs in the Haynesville supported by our hedging strategy.

"Plans to monetise a portion of our non-core acreage for value, such as parts of the southern Hawkville, are underway. In the Eagle Ford, we are increasing recoveries by testing staggered wells and larger frac jobs. In the Permian, we are exploring opportunities to consolidate and optimise our acreage position so that we can drill longer lateral wells to lower costs," he said.

Analysts at Shore Capital noted that BHP reported issues similar to that suffered by Rio Tinto during the period – but generally, not as severe.

They said iron ore, despite being 11% down on last year, performed better than expected given the weather issues.