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BHP Group (BHP) Reports 2% Rise in Iron Ore Production in 1H23

BHP Group’s BHP iron ore production improved 2% year over year to 132 Mt in the first half of fiscal 2023 (ended Dec 31, 2023). Record levels were attained at Western Australia Iron Ore (WAIO), reflecting strong supply-chain performance, including higher car dumper utilization as well as lower COVID-related impact than the prior year period.

BHP witnessed year-over-year improvement in output for copper and metallurgical coal while energy coal and nickel were down. It also provided an update on its previously announced production and cost guidance for fiscal 2023.

Total copper production rose 12% year over year to 834.4 kt in the six-month period that ended Dec 31, 2022. Copper production at Escondida increased 5% year over year due to higher concentrator feed grade. This was somewhat offset by lower throughput and the impact of road blockades across Chile in the December 2022 quarter, which impacted the availability of some key mine supplies.

Copper output at Pampa Norte was up 5%, reflecting the continued ramp-up of the Spence Growth Option. Olympic Dam copper production surged 138% year over year aided by the major smelter maintenance campaign in the prior period. Antamina copper production dipped 3% as higher throughput was offset by lower grades.

Metallurgical coal production was up 5% to 13.6 Mt. Improvement in underlying truck productivity, mainly for the autonomous fleets following the completion of the transitions at Goonyella and Daunia as well as higher yields as a result of mine sequencing and lower impact of labor constraints led to the improvement.

Wet weather, however, had a negative impact. Energy coal production plunged 24% to 5.5 Mt owing to record wet weather, labor shortages, planned wash plant maintenance during the December 2022 quarter and increased quantity of washed coal.

Nickel production declined 2% year over year to 38.4kt during the period under review. The decline in output was due to the slower-than-expected ramp-up of the refinery following planned smelter and refinery maintenance during the December 2022 quarter.

Affirms Fiscal 2023 Production & Cost Guidance

BHP’s iron ore production guidance for fiscal 2023 is 249-260 Mt. WAIO's production is expected between 246 Mt and 256 Mt (278 Mt and 290 Mt on a 100% basis), indicating the tie-in of the port debottlenecking project (PDP1) and the continued ramp-up of South Flank.

BHP expects copper production within 1,635-1,825 kt, Production guidance for Metallurgical coal is now expected to be near the low end of the previously stated range of 29 Mt to 32 Mt due to wet weather. The production guidance for energy coal remains at 13-15 Mt. Nickel production is expected between 80 kt and 90 kt.

Unit cost guidance for WAIO remains at $18-$19 per ton. Escondida unit cost is estimated at $1.25-$1.45 per pound. The company stated that unit costs at WAIO and Escondida are tracking toward the upper end of the guidance.

BMA unit cost has been increased to a range of $100 to $105 per ton reflecting full-year volumes tracking to the low end of production guidance due to significant wet weather, inventory movements and inflationary pressures. NSWEC unit cost has also been updated to $84-$91 per ton owing to production impacts from record wet weather, inflationary pressures and price-linked logistics costs.

Unit cost is expected to be higher in fiscal 2023, indicating inflation trends and higher research costs. These factors will be somewhat negated by lower exchange rates, gains from productivity improvements and cost-reduction initiatives.

Other Updates

In December 2022, BHP signed a Scheme Implementation Deed with OZ Minerals Ltd to acquire 100 percent of the latter through a scheme of arrangement for a cash price of AUD28.25 ($18.67) per OZL share. The implementation of the scheme is subject to satisfaction of certain conditions including OZL shareholder approval. This takeover would significantly enhance its exposure to future-facing commodities while adding attractive synergies.

In October 2022, BHP agreed to invest an additional $50 million in the Kabanga Nickel Project in Tanzania, subject to the satisfaction of customary conditions. This will increase BHP’s stake in Kabanga to 14.3%. BHP has also signed an agreement with Kabanga Nickel Limited that gives it the option to increase its interest in Kabanga to 51%.

Recently, Rio Tinto Group RIO reported a 6% increase in fourth-quarter iron ore production to 89.5 Mt. Iron production was 324 Mt in 2022, 1% higher than the prior year aided by performance improvement efforts and record second-half performance across the mine and rail system.

RIO expects Pilbara iron ore shipments (100% basis) in the range of 320 to 335 Mt in 2023. The mid-point of the range indicates a year-over-year rise of 2%.

Price Performance

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BHP’s shares have fallen 0.7% in a year compared with the industry’s 7.1% decline.

Zacks Rank & a Key Pick

BHP currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Other top-ranked stocks in the basic materials space are CalMaine Foods, Inc. CALM and Franco-Nevada Corporation FNV. CALM currently sports a Zacks Rank of 1 and FNV carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for CalMaine Foods’ fiscal 2023 earnings per share is pegged at $14.08, suggesting 417.7% growth from the year-ago reported figure. Earnings estimates have moved 73.8% north in the past 60 days. CALM has a trailing four-quarter earnings surprise of 15.3%, on average. Its shares have gained 31.4% in the past year.

The Zacks Consensus Estimate for Franco-Nevada’s 2022 earnings per share is pegged at $3.67, suggesting 4.3% growth from the year-ago reported figure. Earnings estimates have moved 4.2% north in the past 60 days. FNV has a trailing four-quarter earnings surprise of 1.3%, on average. Its shares have gained 8.1% in the past year.

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