BHP ramps up iron ore production
Investors responded positively on Wednesday after BHP beat production guidance across most of its product groups, including the iron ore division that ranks as its biggest money-spinner.
The miner surpassed its iron ore guidance by more than 2 per cent for the year to June 30, and said it was already capable of producing beyond its guidance for 2013-14.
BHP said the past three months had shown its Pilbara operations could produce iron ore at a rate that would deliver 217 million tonnes if sustained over a year.
Despite this, the company has set its production target for 2013-14 at 207 million tonnes, giving analysts confidence that next year's guidance could be achieved too. "We think they will beat that," said Deutsche analyst Paul Young, who described the 2013-14 guidance as "very conservative".
BHP, which continues to expand its iron ore division, revealed that the cost of its Jimblebar mine expansion had blown out by $US340 million.
However, the company insisted the extra cost had been counter-balanced by cost reductions in other parts of the business.
There were also strong results in the copper and coking coal divisions, but BHP failed to meet its petroleum guidance for the full year by 1.8 per cent.
Despite the miss, analysts from Deutsche, UBS, Macquarie and Goldman Sachs praised the mining group's overall performance for 2012-13.
UBS and Macquarie expect BHP to announce a $US12 billion profit before exceptional items - such as asset impairments - which would be about 30 per cent lower than last year.
It would also represent BHP's second consecutive year of declining profits since it set a record for Australian corporate profits in 2010-11.
But analysts believe the company is now poised to start increasing earnings again. Both UBS and Macquarie believe BHP will achieve slightly higher profits in 2013-14, and higher again in 2014-15 when underlying profits are tipped by both investment banks to be more than $US14 billion.
There is further cause for optimism for BHP's Australian shareholders - their dividends will benefit from a currency arbitrage, now that the Australian dollar appears set for a stint below parity with the US currency.
BHP will confirm its financial results and dividend arrangements on August 20.
The group's shares closed 76¢, or 2.27 per cent, higher at $34.19 on Wednesday. The stock has now risen 10 per cent over the past seven trading days.
Frequently Asked Questions about this Article…
The article reports BHP beat its iron ore production guidance by more than 2% for the year to June 30. Its Pilbara operations ran at a rate that could deliver about 217 million tonnes if sustained for a year, though the company set a formal production target of 207 million tonnes for 2013–14—guidance analysts described as conservative.
BHP was on track to record underlying profits of more than US$12 billion (about $13 billion) for 2012–13 after strong quarterly results, although analysts noted this would still be roughly 30% lower than the prior year before exceptional items.
Analysts from Deutsche, UBS, Macquarie and Goldman Sachs praised BHP's 2012–13 performance. UBS and Macquarie expected around US$12 billion before exceptional items for 2012–13 and predicted slightly higher profits in 2013–14, rising further in 2014–15 to more than US$14 billion in underlying profits.
Yes — BHP revealed the Jimblebar mine expansion had blown out by US$340 million. The company said the extra cost had been counter‑balanced by cost reductions elsewhere in the business.
The article notes strong results from BHP's copper and coking coal divisions. However, the petroleum division missed full‑year guidance by 1.8%.
The piece suggested Australian shareholders could benefit from a currency arbitrage because the Australian dollar appeared set to stay below parity with the US dollar, which would boost the value of US‑dollar‑based dividends when converted to AUD. BHP was due to confirm financial results and dividend arrangements on August 20.
BHP's shares closed 76 cents, or 2.27%, higher at $34.19 on the day reported. The stock had risen about 10% over the previous seven trading days.
Everyday investors might view the production beat and Pilbara capacity as positive signs that BHP can exceed conservative guidance, while noting a US$340 million cost overrun at Jimblebar and a small petroleum miss. Analysts are generally optimistic about earnings recovery in coming years, but investors should watch the confirmed financial results and dividend details announced on August 20 for clearer guidance.
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