Home > Financial reports > BHP’s Iron Ore Output Rises, But Coal Hit By Rain

BHP’s Iron Ore Output Rises, But Coal Hit By Rain

July 22, 2011

“BHP Billiton Ltd. has paved the way for another year of strong earnings after record production of several commodities including iron ore, although output of metallurgical coal, which is also used to produce steel, continues to be held sharply back by earlier flooding in northeastern Australia.

BHP said Wednesday it achieved an 11th consecutive production record for iron ore, with output up 8% in the year through June 30 at 134.4 million metric tons and 14% higher than a year before in the final quarter. The company shipped ore from its operations in Western Australia state at an annualized rate of 155 million tons a year in the fiscal fourth quarter, it said.

However, metallurgical coal output was 13% lower for the year at 32.7 million tons. BHP said it continues to expect production and sales will be impacted “to some extent” over the remainder of the calendar year by the monsoon rains and flooding that swept Queensland in late 2010 and early this year. Output showed a recovery in the June quarter, up 19% on the prior quarter but down 28% on record volumes in the same quarter last year.”

Source: Wall Street Journal, July 20 2011

Observations:

  • Production for quarter compared to same quarter last year for BHP Billiton and Rio Tinto:
    • iron ore: BHP +14%; Rio +12%
    • metallurgical coal: BHP -28%; Rio -26%
    • thermal coal: BHP +13%; Rio +5%
    • copper: BHP -6%; Rio -17%
  • Credit Suisse expects full year net profit of $23bln for the company. Consensus revenue estimate is around $73bln. This would lift profit margin above 30%; even high than pre-crisis records.

Historic BHP Billiton Revenue and Profit (source: finance.google.com)

Implications:

  • Last year’s production disruptions caused by weather were very severe, but still the large miners manage to achieve record profits. Though double digit year-on-year growth of production for key products is impressive, it will be very hard to retain this growth rate. The miners are certainly not short of cash, but are running out of the large, low cost, development opportunities they are aiming for.
  • The tone of voice of headlines for news on the production reports of BHP and Rio Tinto is striking. While number presented above show that overall results are very similar, the focus of headlines for BHP is on ‘robustness and higher iron ore output’, while Rio Tinto’s results are welcomed as ‘output declines’.

©2011 | Wilfred Visser | thebusinessofmining.com

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