BHP releases quarterly update; slashes FY19 iron production guidance

BHP

BHP Group Limited (ASX: BHP), a subsidiary of BHP Group and headquartered in Melbourne, Australia, discovers, acquires, develops, and markets natural resources worldwide. It primarily explores for Petroleum, Copper, Iron Ore, and Coal. On April 17th, 2019, the company released its Quarterly Activities Report for the three months ended March 31st, 2019 (Mar Q19). The results demonstrate strong operational performance for the period amidst adverse weather impacts across Chile and Australia.

As per the production figures, the company recorded 92 MMboe of petroleum for the nine months to March 2019 (Mar YTD19) and 29 Mmboe for Mar Q19, down 5% on the prior quarter ended December 2018 (Dec Q18). The weak seasonal gas sales at Bass Strait were partly balanced by higher production at Trinidad and Tobago post their maintenance in Dec Q18.

The copper production stood at 1,245 kt for Mar YTD19 and 420 kt for Mar Q19 (up 1% on Dec Q18), on account of improved production from Olympic Dam as surface operations were reinstated to full capacity after the acid plant outage in August 2018.

Meanwhile, the volumes of Iron ore production at Western Australia Iron Ore (WAIO) reflected the impact of Tropical Cyclone Veronica bringing down the production by 3% to 56 Mt at the end of Mar Q19.

Although Queensland Coal delivered a strong underlying operating performance, the wet weather turned it around causing the metallurgical coal production to fall by 4% to 10 Mt in Mar Q19. Besides, the increased production of energy coal at New South Wales Energy Coal (NSWEC) was also counteracted by the adverse weather at Cerrejón resulting in 7 Mt for Mar Q19 (up 1% on Dec Q18).

According to BHP Group, around five major projects are underway for copper, iron ore, petroleum and potash with a total budget of USD 11.1 billion. In Petroleum, around USD 696 million (BHP share) in capital expenditure for the Atlantis Phase 3 project in the US Gulf of Mexico was approved and the Bélé-1 exploration well in Trinidad and Tobago encountered hydrocarbons (drilling still in progress) during the quarter.

During the nine months ended March 2019, the total exploration expenditure for minerals amounted to around USD 122 million, of which USD 84 million was expensed.

In March 2019, BHP also signed a non-binding letter of intent (LoI) with Luminex, for an earn-in and joint venture agreement, expected to be closed within next two months, on Luminex’s Tarqui 1 and 2 mining concessions located in Ecuador. Of Late, on April 15th, 2019, BHP obtained a 5% interest in Midland Exploration Inc., which owns tenements with copper deposits in Canada.

Going further, the production guidance for the financial year 2019 remains as prescribed for all minerals but reduced to 265 Mt -270 Mt for Iron ore due to the Tropical Cyclone Veronica. Besides, the full year unit costs for Petroleum, Escondida and Queensland Coal are also expected to be in accord with guidance but for Iron ore, it is now below USD 15 per tonne.

The Group’s current market cap stands at AUD 115.98 billion with ~ 2.95 billion outstanding shares. On April 17th, 2019, the BHP stock price is trending at AUD 38.520, down 2.16% with a positive YTD return of 21.92%.


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