BHP delivers record returns despite productivity challenges

The Jimblebar mine. Image: BHP

BHP’s operational improvements during the 2019 financial year have been offset by poor weather, resource headwinds and unplanned outages.

Despite achieving record volumes at its Jimblebar operations in Western Australia, record throughput at its Chilean copper assets and record production at South Walker Creek and Poitrel in Queensland, BHP’s costs and productivity were undermined by “significant resource headwinds.”

The challenges included grade decline at BHP’s copper assets, higher strip ratios at its coal assets and a natural field decline in petroleum.

While the company’s productivity gains equated to $US1 billion ($1.48 billion), this return was offset by $US2 billion in costs due to unplanned production outages, higher unit costs in coal and mine plan changes at its Nickel West operations.

BHP’s shareholders still enjoyed a record $US17 billion in returns for the 2019 financial year, along with a record US78 cents per share dividend.

The company’s underlying profit also reached its highest level in five years, totalling $US9.1 billion, up two per cent from last year.

This is backed by the company’s strong free cash flow generation, which is driven by operational performance, according to BHP chief executive officer Andrew Mackenzie.

“Higher prices and record production from several of our operations contributed to strong operating cash flows,” Mackenzie said.

“We used that cash to invest in attractive growth projects, advance our exploration programs and increase returns to shareholders.”

BHP’s growth projects in development include a diversified portfolio of petroleum, copper, iron ore and potash, with a combined budget of $US11.1 billion over the project’s life.

The company reported that all projects remain on time and budget, including the Spence Growth Option copper project in Chile, which is expected to reach first production in the first half of the 2021 financial year.

“Our transformation programs have the potential to unlock significant value through more productive and table operations, as we embrace new ways of working and harness new technology,” Mackenzie said.

BHP has also alluded to the continuation of feasibility studies for the phased roll-out of autonomous haul trucks across a number of its coal and iron ore operations in Australia.

It revealed that a decision on the deployment of the trucks will be made on a site by site basis, considering return and risk metrics, as it looks to replicate the improvement in haulage costs and reduction in safety incidents.

Looking ahead at the commodity market, BHP expects iron ore supply conditions will return to a “more normal path” within one to three years following increased volatility due to a decline in Brazilian exports.

BHP also flagged its interest in copper with demand expected to grow steadily while the electrification of transport requires the company undertakes “ongoing investment in new sources of supply in the coming decades.”

Looking ahead, Mackenzie emphasised that the company would “enter the 2020 financial year with positive momentum and a strong outlook for both volume and cost.”

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