BHP Billiton Shares Decline as Iron Ore Output Lags Forecasts
Shares in Anglo-Australian miner BHP Billiton (BHP) - Get Report fell in Sydney on Wednesday after it followed peer Rio Tinto (RIO) - Get Report in announcing quarterly output figures that revealed an iron ore shortfall.
Production of the mineral, a key component of steel, fell by 7% to 56 million tons in the fourth quarter, just under analysts' expectations, and taking full-year output to 227 million tons, below BHP's April guidance of 229 million tons.
For the 2017 fiscal year, however, BHP expects to produce 228 to 237 million tons of iron ore, which would represent a rise of up to 4%.
"Over the next 12 months, we expect volumes and costs across our minerals businesses to benefit from our continued drive to safely improve productivity. We can create significant value through further cost reductions, taking advantage of latent capacity in our assets and investing in low-capital projects," said CEO Andrew Mackenzie in the statement. "These initiatives are expected to grow production by five per cent in copper, up to four per cent in iron ore and three per cent in metallurgical coal in the next financial year."
BHP shares pared initial losses and by late in the business day in Sydney were down 3.3% at A$19.18 ($14.39).
For both BHP and Rio Tinto the shortfall disappointed investors since iron ore prices have been recovering in recent months amid increased demand from China. Chinese GDP figures out last week showed state infrastructure spending kept growth afloat in the second quarter, allowing the economy to expand by 6.7%. BHP said its average realized price for iron ore rose by 2% in the six months to June from the previous six months.
BHP said that it exceeded output guidance for petroleum, copper and metallurgical coal in the fourth quarter.
It also warned of up to $175 million of charges against underlying second half-profit. It came to that figure after reversing previous write-downs after commodity prices recovered, and adding the cost of layoffs and new write-downs related to coal assets. Energy coal output fell 34% year-on-year in the last quarter and was down 12% on the previous quarter. Year-on-year, coal prices sustained double-digit declines in the second half, though coking coal prices edged up compared with the previous six months.
Fiscal 2016 iron ore output was stymied by the suspension of production at the Samarco mine in Brazil, which BHP co-owns with Vale, after a damn burst last November, killing 19 and leaving the companies with multi-billion-dollar damages claims.
On June 30 a Brazilian court tore up a framework settlement ratified by a lower court with BHP and Vale, perpetuating uncertainty about how much the companies will have to fork out. BHP is appealing the decision.
"For the June 2016 half year, we are not yet in a position to provide an update to the potential financial impacts on BHP Billiton Brasil of the Samarco dam failure. We are continuing to work closely with Samarco and will provide an update as soon as we are in a position to do so. Any potential financial impacts related to the tragedy are expected to be classified as an exceptional item," said BHP.