1H21; left it to iron ore
BHP has turned into its operational second half for fiscal 2021, with only iron ore as a key product offering printing a positive outcome for the first half. Petroleum and copper dragged following falls in production for the first half, while cameos by the minor product offerings for the first half were mixed but with a tendency to the positive side. Production guidance for 2021 has however been maintained across most product offerings where guidance is provided, with some generally positive tinkering. The following table is a summary of BHP’s first half 2021 operational results (boe – barrel of oil equivalent, bcf – billion cubic feet):
Source: BHP (ASX:BHP)
We are pleased with the performance of BHP’s iron ore offering, but after that, the operational results for the other key production offerings were a little disappointing. We draw comfort in that 2021 guidance remained broadly unchanged with a tendency to positive tinkering.
Iron ore did turn in another record first half, following the reporting of a 5.8% increase year-on-year (yoy), to a record 128.4 million tonnes. The following chart shows first half iron ore production:
Source: BHP (ASX:BHP)
Driving the result was the Jimblebar mine (BHP’s interest 85%) following the reporting of a 17.7% increase in production yoy, to a record 36.8 million tonnes as the mine continues to operate at a better-than-expected run rate on efficiency gains. BHP’s Newman (BHP’s interest 85%) and Yandi Joint Venture (BHP’s interest 85%) added minor positive contributions to the half year result.
Operations at Samarco (BHP’s interest 50%) remain suspended but are expected to restart immediately, as all requirements set by the Brazilian government, to do so, have been met. Samarco is expected to add in the range of two to three million tonnes in the second half 2021. Initially Samarco will add around seven million to eight million tonnes per annum or around 26% of its capacity. Early operational success will see the partners slowly increase capacity as deemed legal to do so.
With Samarco returning to operations, iron ore production guidance for 2021 has been revised marginally higher with a forecast in the range of 245 million to 256 million tonnes (100% basis), from the previous 244 million to 253 million tonnes (100% basis). Within this forecast Western Australian Iron Ore production is forecast to be in the range of 276 million to 286 million tonnes (100% basis) and was unchanged.
Copper production for the first half reported a 4.9% fall yoy, to 841,300 tonnes. The following chart shows first half copper production:
Source: BHP (ASX:BHP)
Both copper concentrate and cathode production contributed to the result for the half, with cathode production the primary culprit. Copper cathode production fell 11.9% yoy, to 294,000 tonnes, primarily on COVID-19 operational restrictions. Copper concentrate production fell 0.7% yoy, to 547.3 million tonnes, with COVID-19 restrictions again having a major impact.
Guidance for 2021 for copper, for both concentrate and cathode production, was narrowed from the low-end to a forecast in the range of 1.51 million to 1.645 million tonnes, from the previous 1.48 million to 1.645 million tonnes.
Petroleum was again a battle for BHP in the half, following the reporting of a fall in production. The following chart shows first half boe petroleum production:
Source: BHP (ASX:BHP)
Boe production for the half fell by 12.1% yoy, to 50.5 million boe. Both crude and natural gas production contributed to the result on lower demand and field shut ins.
Guidance for 2021 on a boe basis is forecast to be in the range of 95 million to 102 million boe and was unchanged but is, pleasingly, expected to fall toward the top end of the range.
On the individual product offering within petroleum, crude production fell 12.8% yoy, to 18.8 million boe. The following chart shows first half crude production (no adjustments have been made to the historic numbers to reflect asset sales; the numbers are as read at the time):
Source: BHP (ASX:BHP)
A majority of fields contributed to the overall lower performance for the first half, on lower third-party demand and weather events. Natural field declines also added to the headwinds impacting production in the first half. Individual guidance for crude is not provided.
Natural gas production printed an 10.4% fall yoy, to 169.4 billion cubic feet, with half yearly production shown in the following chart (no adjustments have been made to the historic numbers to reflect asset sales, the numbers are as read at the time):
Source: BHP (ASX:BHP)
Shut in and natural field declines were behind the lower result for the first half. A fall in third party demand was also a key contributor across the natural gas portfolio. Individual guidance for natural gas is not provided.
BHP struggled with energy and metallurgical coal production in the first half, with both reporting falls. Metallurgical (met) coal production printed a 5.3% fall yoy, to 19.2 million tonnes, with weather events singled out as a contributor to the first half result. Energy coal reported a 29.7% fall yoy, to 19.2 million tonnes, on staffing issues and weather events.
Met coal guidance for 2021 remained unchanged with production forecast to be in the range of 40 to 44 million tonnes. Guidance for thermal coal in 2021 was however downgraded to a forecast in the range of 21 million to 23 million tonnes, from the previous 22 million to 24 million tonnes.
In providing data reads on realised commodity process for the first half, BHP has indicated for its key product offerings, only iron ore and copper printed a better number. The remaining product offerings however reported lower realised prices for the first half. Realised pricing for the first half is summarised in the following table for BHP’s key product offerings:
Source: BHP (ASX:BHP)
As Members can see from the above table, BHP’s iron ore offer was the standout, with copper the only other commodity to report higher realised prices for the first half, from the selection shown. BHP’s energy offerings were the disappointment, with petroleum and thermal coal printing lower realised prices for the half. On commodity pricing, we have a firmer pricing outlook for iron ore, base metals and crude prices for 2021. Members can view our recently published Top Predictions for 2021 – Part I – Prediction 4 (iron ore and base metals) and Prediction 5 (crude) by clicking here.
BHP (ASX:BHP) has delivered, in our view, a pretty ordinary first half operational result with only iron ore the real standout. We take some comfort in guidance for 2021, across BHP’s product offerings, however remaining primarily unchanged, with some minor adjustments. With BHP share trading at record highs, we believe the current share price places a high bar on the forward value for forward iron ore, crude and base metal pricing.
Consequently, we have maintained our hold recommendation for BHP Group (ASX:BHP). Â
Disclosure: Interests associated with Fat Prophets hold shares in BHP Group (ASX:BHP).
