BHP records production declines as it continues ‘streamlining’

BHP has recorded a drop in first half production levels across the board.

The global miner saw year on year falls in production for petroleum, copper, iron ore, and thermal coal, although it has recorded a slight uptick in coking coal.

On the back of its latest results, BHP CEO Andrew Mackenzie reiterated the miner’s focus on improving productivity across the board.

Part of this is a focus on delivering US$600 million in productivity gains by the end of the 2017 financial year, through releasing latent capacity, which a BHP spokesperson explained as implementing processes such as improving truck movements, increasing infrastructure efficiency to gain greater throughputs, and similar exercises.

This is on top of the US$3.5 billion in cost savings BHP chief Andrew Mackenzie has already slated for the 2016/17 financial year.

The miner is aiming to achieve truck utilisation of 6500 hours by FY20, and is targeting a wash plant utilisation of 8000 by FY19 as it reduces bottlenecks at the plant.

“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,” Mackenzie said.

In terms of iron ore’s performance for the financial year, BHP actually saw an increase in its West Australian operations output, pushing out a record rate thanks in part to Jimblebar moving to full capacity and improved utilisation of ore handling at Newman.

However, this was offset by suspension of operations at its joint venture Samarco mine in Brazil following the tailings dam disaster, with the mine’s 2016 financial year production only 11 million tonnes as it reduced existing stockpile levels.

BHP is forecasting increased production next year for West Australia iron ore, to between 228 and 237 million tonnes in the 2017 financial year, excluding production from Samarco. It plans to reach this target due to its 24-month rail program, which will support the miner’s integrated supply chain reliability, and ramp up of additional capacity at Jimblebar, which will have a new primary crusher and additional conveying capacity installed in the last quarter of the year.

Total copper production fell by eight per cent year on year to 1.58 million tonnes and zinc by 17 per cent.

However the miner has seen a massive growth year on year in its silver and uranium production, recording an increase in rates of 41 per cent and 39 per cent respectively.

In terms of copper, much of this loss was driven by lower grades at Escondida, where grades declines of around 28 per cent in total are expected.

Australian operation Olympic Dam helped to offset much of this fall as it lifted copper production by 63 per cent for the 2016 financial year to 203,000 tonnes.

This was due to higher grades, improved smelter and mill utilisation following its Svedala mill outage last year, and despite planned maintenance downtimes.

It is delineating new stopes – with plans to proceed at a rate of 35 stopes per year – and over the next five years will construct 120 kilometres of new underground tunnels, expecting to drive down a few hundred metres more.

It has begun early work on the first stopes, with mining under way on the blocks known as the Violets.

BHP’s Antamina operation also saw production increases, lifting copper output by 36 per cent to 146,000 tonnes, although this level will fall next year as it encounters zinc rich mineralisation which will drop copper production to 130,000 tonnes, but lift zinc output from 55,000 tonnes to 90,000 tonnes next financial year.

BHP’s coal operations are a tale of two stories, as it recorded vastly different outcomes in its metallurgical and energy coal divisions.

While its coking coal production only saw a one per cent increase year on year, quarter to quarter the miner recorded a massive 17 per cent increase.

Although Queensland coal output was relatively flat, increased plant productivity helped the miner to offset the end of longwall mining at Crinum, a convergence event at Broadmeadow – which BHP denied was a cave-in and instead stated there was a longwall shifting which causing the roof to exert pressure on the longwall shields and impact upon the longwall face – and general poor weather.

A longwall move at Broadmeadow and CHPP shutdown at Saraji are scheduled for the next quarter.

It plans to lift production again next year from 43 million to 44 million tonnes, despite the divestment of its Indonesian coal assets.

In regards to energy coal, BHP saw a 16 per cent fall in output year on year, with an overall production of 34 million tonnes.

This rate will fall again next year, with BHP forecasting thermal coal production levels of 32 million tonnes, although productivity improvements at its NSW operations will offset the upcoming divestment of its New Mexico coal assets.

The miner blamed inclement weather for the 13 per cent fall in production at its NSW operations, coupled with the rescheduling of mine plans, while its Cerrejon mine volumes declined by 11 per cent due to drought conditions in the first half of the period and heavy rains in the second.

Nickel also took a fall due to planned maintenance at the Kalgoorlie smelter and Kwinana refinery, with BHP recording a 10 per cent drop year on year.

However, it expects to increase production by 10 per cent in the next financial year period due in part to higher grades at Mt Keith and a ramp up at Leinster which will support higher utilisation of the smelter and refinery.

On the corporate front, BHP expects positive turns for its underlying attributable profit thanks to a reversal of previously recorded inventory write downs thanks to slightly stronger commodity prices; redundancies from the ‘simplification’ of the business; and impairments in coal where it plans to slash costs by around $800 million.

The miner also expects to record an exceptional item for global taxation matters of between US$150 million and US$200 million, “this includes potential litigation and tax-related amounts,” BHP said.

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