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BHP Completes Operational Review; Will Reduce Iron Ore Production

BHP Completes Operational Review; Will Reduce Iron Ore Production
Jan 20, 2016 By Imran Valibhoy Tags: BHP

BHP Billiton (ASX:BHP) released the results of its operational review for the half year ended 31 December 2015.

The international miner increased US$300 million to US$ 450 million worth additional charges to its underlying attributable profit for the half year ended December 2015.  The company claims that the charges arose from redundancies and inventory write-downs. Adding to this, BHP also recently announced a write-down against its US on shore assets worth $US 7.2 billion.

The company’s Chief Executive Officer, Andrew Mackenzie commented on the review: “Our operated assets continued to perform well over the last six months. The strong performance of our conventional petroleum assets has offset lower shale volumes following a reduction in investment to preserve the value of our acreage in current market conditions.”

Petroleum and Natural Gas

The total petrol production for the half year period decreased by five percent to 124.7 MMboe as it reduced its activity in Onshore US rigs, faced a third party gas plant outage in the Permian and sold its gas business in Pakistan. Natural gas production for the period declined by seven percent to 386 bcf. The company did not change its guidance for FY16, which was previously forecasted at 237 MMboe.

While the petroleum exploration expenditure for the December 2015 half year was US$ 321 million, the company plans an exploration program worth US$ 600 million for the 2016 financial year. The program largely focuses on acreage access, seismic data acquisition across the company’s key focused areas and increased activity in its exploration drilling program.

Copper

The total copper production for the December 2015 half year decreased by six percent to 762 kt as the grade of copper produced in Escondida was declined by 25 percent. Escondida copper production for the period declined by 18% as the increased ore milled during the period was enabled by a drawdown of historically high-cost, lower grade iron ore inventory. The overall guidance for the 2016 financial year remains unchanged at 1.5 Mt.

Iron Ore

Total iron ore production for the December 2015 half year increased by four percent to 118 Mt. However, BHP reduced its production guidance for FY16 by four percent, to 237 Mt, blaming the suspension of operations at Samarco. Samarco production for the period declined by 25 percent to 11 Mt as mining and process operations at the place remained suspended after the accident which resulted in the death of 17 people and two people remain missing.

Coal

BHP’s Metallurgical and energy coal production decreased by three percent to 21 Mt while the guidance for FY16 remains unaffected at 40 Mt.

Nickel

The company’s Nickel production decreased by 23% as it experienced major outages at the Kalgoorlie smelter and Kwinana refinery.

Shares of BHP, as at 10:44 AM, declined 0.61% since the announcement and the stock is currently trading at ten year lows.

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Imran Valibhoy Author: Imran Valibhoy Jan 20, 2016

Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.

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