The BHP Group Ltd (ASX:BHP) share price has shed 2.33% today down to $51.08 after announcing an underwhelming production update and flagging further operational challenges.
BHP share price falls as output drops across the board
Key production results for the quarter ending March 31 include:
- Iron Ore output down 10% quarter-on-quarter (QoQ), flat year-on-year (YoY)
- Copper output up 1% QoQ, down 10% YoY
- Metallurgical Coal up 20% QoQ, down 2% YoY
- Energy Coal down 13% QoQ and 1% YoY
- Nickel down 13% QoQ and YOY
The recently sold petroleum assets delivered a 2% quarterly production increase but fell 6% compared to 2021. The purchase will be voted on by Woodside Petroleum Limited (ASX: WPL) shareholders on May 19 with a transfer date set for June 1.
It was a difficult quarter for BHP, with all minerals recording stagnant or negative growth on the prior corresponding period.
Production guidance has been lowered for nickel and copper while reconfirming iron ore, metallurgical and energy coal.
Management cited COVID-19 induced worker absenteeism in addition to workforce shortages.
“While we expect conditions to improve during the course of the 2023 calendar year, we anticipate the skills shortages and overall labour market tightness in Australia and Chile to continue in the period ahead” – CEO Mike Henry
BHP cost guidance remains unchanged except for NSW Energy Coal, which lifted to between US$76 to US$81 per tonne. Management has deliberately increased the production of higher quality coal to capture betters returns from record prices.
Portfolio changes
The two potash projects under development, Jansen mine shafts and Jansen Stage 1, are tracking to plan.
BHP also invested $108 million to acquire a 5% stake in Canadian Filo Mining, which owns the Filo del Sol copper project in Chile.
Divestments include the aforementioned petroleum assets to Woodside and finalising the sale of 80% of its interest in BHP Mitsui Coal (BMC).
BHP shareholders as of May 26 will receive one Woodside share for every 5.534 BHP shares owned.
Meanwhile, BHP will receive US$1.2 billion from Stanmore Resources with the potential for a US$150 million earnout in 2024 pending production at BMC.
The business remains in consultation with Brazilian authorities regarding the restructure, compensation and settlement resulting from the Samarco joint venture with Vale.
In 2015, 20 people died when a tailing dam burst at Samarco causing a mud landslide around the city of Mariana.
Production down, prices up
Despite the production setbacks, elevated commodity prices across BHP’s portfolio means the miner is minting huge profits.
Coal, copper, nickel and potash prices are at record highs, albeit BHP is not yet selling from its potash developments.
Even iron ore is having a bumper year, with the current price around US$150.
Shareholders can look forward to another chunky dividend when the miner releases its full-year results in July.
Editor note: The article originally stipulated BHP shareholders would receive 5.534 Woodside shares for every one BHP share. This has since been corrected.
