BHP fires on twin cylinders, Iron ore and Copper scale new highs

Summary

  • Iron ore futures surged to a 10-year high, while copper crossed US$8,000 levels in early January.
  • The strong demand and supply disruptions have been responsible for the recent iron and copper rally.
  • BHP Group is one of the leading miners of both iron ore and copper globally.
  • Iron ore production set to increase further with the commencement of South Flank project, which will produce over 80 Mtpa from mid FY2021.

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After seeing an incessant grind of Iron Ore and Copper prices due to the feeble demand during global lockdowns smothering the industrial activity, the prices have finally bounced back, breaking all the hurdles to achieve new heights.

Rally continues in the New Year 2021

The iron ore futures surged to a 10-year high of around ~USD168.99 per dry metric ton on 11 January 2021, while copper rallied to over ~US$8,039.50-a-tonne mark on 6 January 2021, the highest since February 2013. China's rapid economic growth and an upsurge in iron and copper demand are one of the leading factors for the major upsurge in these commodities’ prices.

Australia and Brazil are the largest suppliers of iron ore to the Chinese steelmakers, accounting for over 90 per cent of the Chinese iron ore imports. The temporary suspension of Vale mining operations has provided an extra advantage to the Australian iron ore miners to increase their export volumes to a new record. On the flip side, the exports from Brazil were at the lowest in the past 10 years.

The Australian mining players have been the beneficiary of the Iron-ore-and-copper-price rally. The strong commodity price environment has supported the share prices of iron ore and copper mining giants like BHP (ASX:BHP), Rio Tinto (ASX:RIO), and Fortescue (ASX:FMG).

While FMG and RIO are the biggest players in the iron ore segment, BHP holds a strong position across both the commodities and is among the leading producers.

BHP Iron Ore Arena:

BHP produced 66Mt of iron ore in Q1 2021, registering an 8 per cent rise against the previous year and a 1 per cent hike from the previous quarter.

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The Western Australian Iron ore operations have ramped up production to record volumes at Jimblebar. The Integration of improved maintenance strategies and advanced operating systems has improved the productivity at BHP operations. The strong supply chain and efficient operations have led BHP to achieve new heights even in the coronavirus pandemic conditions.

Also Read: Iron Ore Prices Leap Once Again, Futures surge to 10-year highs

BHP’s Iron Ore Production Source: BHP Quarterly Activities Report, dated 20 October 2020

The South Flank project is already 85% complete and is ready to deliver 80 Mtpa from mid FY2021. The operations at Samarco, which were suspended due to Fundão tailings dam failure, will also resume with 7 to 8 Mtpa, after five years.

BHP Copper Arena:

BHP produced a total of 413 kilo tonnes of copper in the September quarter of 2020 and targets to produce between 1,480 and 1,645 for the entire year. While the copper mining operations were handled by a reduced workforce, the copper production dipped by only 4 per cent. During these pandemic times, BHP has focused on offsetting the production dips by its Chilean and Australian productions.

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The wholly-owned Spence Growth Option Chilean project is expected to commence production by March 2021. The task is 97 per cent complete and includes a concentrator to produce copper-rich concentrates, producing ~185,000 tonnes during the initial 10 years of operations.

BHP’s Copper Production Source: BHP Quarterly Activities Report, dated 20 October 2020

Australian Olympic Dam copper production has surged by 47 per cent to reach 52kt, the highest since December quarter 2015. With an aim to expand the production levels, the commissioning of the refinery crane facility is anticipated to be completed by March 2021.

Interesting Read: Copper Hits 8-Year High: What’s Fuelling the Momentum?

However, a slight decrease in the production of various projects has been noticed at the Escondida’s (3% lower production) and Antamina (8% lower production) due to limited availability of manpower and pandemic restrictions.

While the global stimulus packages focus on boosting infrastructure and industrial activity, the iron ore and copper miners may enjoy the strong demand and prices for quite some time in the future.

BHP traded at $46.08 a share on 13 January 2021 at 12:22 PM AEDT with a market capitalisation of $136.15 billion.


 


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