BHP tipped to slash lagging operations
BHP Billiton has been tipped to slash some Australian operations in 2013 despite new statistics showing solid performance across its most important product groups.
Production guidance for key commodities such as iron ore and petroleum remains intact at the halfway mark of the 2013 financial year, but the resources giant has confirmed there is no relief in sight for laggards like nickel and aluminium.
The market responded warmly to the release of BHP's production results for the three and six months to December 31, lifting BHP shares by 48¢ to $37.06.
The nickel and aluminium sectors have been under pressure from the combination of the high Australian dollar and low prices in recent times, and BHP said those factors continued to "place pressure on the group's alumina and nickel operations" during the period to December 31.
Despite aluminium production improving by 10 per cent over the past three months, Goldman Sachs estimated the division would still be losing money over the half, and may continue to do so for another 18 months.
The nickel division was not even able to boast good production numbers, with planned maintenance leading to production rates that were lower than at the same time last year.
Goldman Sachs analyst Craig Sainsbury said those lower production rates would only add to pressures on the loss-making nickel division.
"Under current nickel price and currency levels we believe that there is the potential for more volume to be shut down in the Nickel West operations," he wrote.
Nickel West, located in Western Australia, has already faced "restructuring" over the past year that included some job cuts.
But the mood was more optimistic in BHP's iron ore division, where the last major piece of infrastructure has been installed at Port Hedland to lift the division's production capacity to 220 million tonnes a year. A new car dumper and two new ship loaders were installed over recent months and will be needed if BHP is to achieve its production guidance of 183 million tonnes for the 2013 financial year. The 42.1 million tonnes produced in the December quarter means BHP is only about 45 per cent of the way towards its annual target at the halfway mark of the year, but the company said it still expects to achieve the 183-million target with the help of the new infrastructure.
BHP's iron ore export figures suggest Fortescue Metals Group may top 20 million tonnes of iron ore exports in a quarter for the first time when it reports its results on Thursday.
BHP's petroleum division is slightly ahead of schedule in its goal to produce 240 million barrels of oil equivalent this financial year, having produced 121 million barrels so far.
Copper production was 14 per cent higher than the same time last year, largely thanks to the completion of maintenance and improved grades at Escondida in Chile. Copper dominated BHP's exploration spending, too.
BHP chief executive Marius Kloppers has repeatedly called for Australia to improve its productivity rates in recent months, and his comments appear to have resonated with his coking coal staff in Queensland.
Production from the Queensland operations was approaching "full supply chain capacity" by the end of December, which BHP said was likely to deliver "a substantial reduction in unit costs" over the next six months.
JPMorgan's Lyndon Fagan said the market should be satisfied with the results, and attention now turned to what costs would be cut when BHP reveals its financial results next month.