BHP Finished the Year On a Production High

With the exception of copper's poor performance, BHP Billiton achieved production highs in most commodities that matter

Mark Taylor 27 July, 2010 | 11:03AM
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BHP Billiton finished the year on a production high in most commodities that matter. A notable exception was copper which, despite being 22% ahead of 2010's third-quarter levels, at 280,000 metric tons, was still below expectations. Lower grades at Escondida and a later-than-anticipated restart to hoisting from the damaged Clark Shaft at Olympic Dam more than offset a return to full capacity at Spence and improved Cerro Colorado plant utilisation. Copper is a major profit centre for BHP, around a quarter of group earnings before interest and tax for the last three years, and a challenge to replace.

Fortunately, relative outperformance from oil, coking coal, nickel, and to a lesser extent iron ore and aluminum, combined to alleviate copper's shortcomings. Diversification is a particularly strong feature for BHP. Oil benefitted from first production from the Pyrenees project on March 1. The Stybarrow project also grew output from diminished levels during the third quarter of 2010. Coking coal enjoyed improved operational and supply chain performance and strong underlying demand following the weather-interrupted third quarter. Nickel West upped its game since the smelter rebuild during fiscal year 2009. Iron ore was strong despite impacts from Rapid Growth Project 4 tie-in activities.

We retain our positive view on BHP. Annual production records for Petroleum and WA Iron Ore are highlights. Earnings forecasts change little, but valuation increases courtesy of upgrades in outlook for petroleum, iron ore and coking coal production.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BHP Group PLC1,867.80 GBX-1.27Rating

About Author

Mark Taylor  is an equity analyst at Morningstar.

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