Rio Tinto tough act to follow for BHP

BHP's mixed first quarter contained some disappointments but we are upping estimates on the back of recent price forecast upgrades

Mark Taylor 22 October, 2009 | 9:45AM
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BHP Billiton reported a mixed first quarter with records for petroleum and iron ore offset by lacklustre base metals performances. Overall, this was a bit below expectations, and disappointment heightened in juxtaposition with Rio Tinto's unexpected outperformance. In reality both companies turned in similar September quarters, it's just that BHP has set a comparatively higher bar for itself. Although not a screamer, the quarter falls within the normal spectrum of ups and downs that can be expected in mining.

Noteworthy was the petroleum division, up 10% to a mammoth 41.2 million barrels of oil equivalent in production and well ahead of expectations. In particular, the liquids fraction--crude, condensate, and natural gas liquids (NGLs)--rose 17% to 22 million barrels largely courtesy of Shenzi and Atlantis in the Gulf of Mexico. An absence of weather-related interruptions generally aided the cause. BHP says the petroleum segment is on track to deliver 10% compound annual growth in fiscal year 2010.

Iron ore also put in a strong showing though only to anticipated levels. Output increased 15% to 30.8 million metric tons despite the impact of tie-in activities around the Rapid Growth (RGP) 4 project in the Pilbara. RGP4 is nearing completion, and RGP5's 50 million metric tons-per-year capacity add-on is 18% finished, on schedule, and within budget. All three pellet plants at Samarco in Brazil operated in the first quarter. This helped defray RGP4-related production weakness.

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Mark Taylor  is an equity analyst at Morningstar.