BHP Billiton Annual Iron Ore Output Hits Record
07/17/2012| 07:46pm US/Eastern
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-- Iron ore production increases 19% for the year; forecast to rise 5% this year
-- Company reports record production in 10 of its operations
-- Petroleum volumes rise 40% for the year, led by natural gas
MELBOURNE--BHP Billiton Ltd. (>> BHP Billiton Limited) is targeting a 13th consecutive annual increase in iron ore production as it and rivals including Rio Tinto PLC (>> Rio Tinto plc) continue to invest heavily in Australia's arid Pilbara region despite concerns over prices for the steelmaking commodity as China's economic growth cools.
BHP, the world's largest mining company by market value and the third-largest iron ore producer after Brazil's Vale SA (>> Vale SA) and Rio Tinto, said Wednesday its production increased by 15% on-year in the three months through June and by 19% for the financial year to a record 159.5 million metric tons. It forecast a more modest 5% increase in output from Western Australia this year, and possibly even greater volumes in the years ahead as it continues to ramp up its production capacity.
The strong performance in iron ore, the greatest contributor to the Melbourne-based mining giant's earnings, was part of what BHP said were production records across 10 of its operations for the year "in a challenging environment."
Tom Albanese, chief executive of Rio Tinto, a day earlier cautioned that global economic conditions and sentiment had dropped markedly in the June quarter and the company was closely watching the pace of the recovery in the U.S., the ongoing eurozone crisis and the efforts to stimulate the Chinese economy. Rio Tinto's iron ore mines in the Pilbara also achieved record production of 114 million tons in the half year to the end of June.
Iron ore production at both companies has been solid, but analysts continue to trim earnings forecasts to factor in margin pressures, rising costs and weaker prices for many commodities, said Tim Schroeders, a fund manager at Pengana Capital in Melbourne, which owns shares in BHP and Rio Tinto. He said Rio Tinto in particular could see earnings expectations further reduced after it reported a lag in iron ore sales to output in Australia as it prepares for a further jump in production capacity.
At 0155 GMT, BHP's shares were down 1.6% at A$30.29 and Rio Tinto's were down 2.7% at A$52.99, in line with the mining sector. Australia's benchmark S&P/ASX 200 index was down 0.3%.
Prices for key metals and minerals have slumped from last year's highs as investors have fretted over a global fallout from Europe's debt crisis and as China's booming economic growth has slowed in recent quarters and raised concerns over its continued demand for iron ore, copper and other materials. BlackRock Inc., a major investor in mining companies, said in a report Tuesday it remained bullish on most metals and energy-related commodities, in particular copper and oil over the long term due to looming supply gaps.
BHP, which recently backed away from earlier plans to invest about US$80 billion over five years to the end of financial 2015, has three major US$10 billion-plus expansion projects that are due to go before its board for approval at the end of the year. It committed US$7.5 billion to eight projects over the past year, and spent US$3.3 billion drilling and developing its onshore U.S. oil and gas assets.
Production of petroleum products jumped 40% for the financial year to 222.3 million barrels of oil equivalent, which was just shy of the company's earlier guidance for output to rise to 225 million. The growth in volumes was driven by output of natural gas, which has seen a sharp fall in U.S. prices. The petroleum division accounted for about 18% of revenue in the first half of the financial year, compared with almost a third of revenue from iron ore.
BHP, the world's biggest exporter of steelmaking coal by sea, said its metallurgical coal operation managed a 2% increase in production in the fourth quarter and for the year, despite ongoing strikes that dented output from mines in Australia's Queensland state jointly owned with Mitsubishi Corp. (>> Mitsubishi Corp). Force majeure at the Queensland mines was lifted this week as the venture moved closer to a workplace agreement with three labor unions, but BHP said the disruption had led to "significant margin compression."
Among other commodities produced by BHP, output of copper rose 15% on the year in the final quarter but was down 4% for the financial year, fourth-quarter alumina output was up 1% on the year and aluminum production fell 21% on the year. Energy coal output rose just 1% on-year for the quarter and was up 2% for the year, the company said.
-Write to Robb M. Stewart at robb.stewart@wsj.com
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