BHP: A new copper discovery and a record pace in iron ore highlight BHP quarterly

BHP announces discovery of new copper porphyry just 140km from Phoenix, Arizona
Iron ore output hits record for first nine months of a financial year
Nickel West production guidance down on Mt Keith rainfall and Mincor product quality issues

BHP (ASX:BHP) has made no bones of its need to ratchet up exploration if it wants to get serious about the pivot from fossil fuels and internal combustion engines to renewable energy and electric vehicles.

We could need to double copper production by 2023, a tall task given exploration expenditure across the globe is lower now than it was over a decade ago, inflation be damned.

But it may have made its first major discovery of the new BHP era, the Ocelet prospect 140km east of Phoenix in Arizona — that’s in the USA champs and not far from where Kevin Durant is now slinging a ball for the Suns — where BHP has drilled 12 drill holes over 17,748m since 2019.

They’ve come back with significant intercepts and grades in the range of 0.44-0.92% Cu, a material grade for a porphyry in this day and age.

With the $9.6 billion acquisition of OZ Minerals now virtually completed as well, attention is also turning to ramping up Oak Dam, the major new find near its world class Olympic Dam mine and smelter in South Australia’s Gawler Craton.

BHP can now host a camp for up to 150 people, core processing and 14 drill rigs after securing environmental approval from the SA Government. It will increase rig numbers on site from six to 10 by the end of the September quarter.

It takes a lot to distract from BHP’s iron ore exports, the mainstay of its business, and its coal tonnes as well.

But the whole world is batty about copper right now, and a big new discovery could be just what the doctor ordered for “future facing commodity” hungry BHP.

The OZ deal will help it chase growth in that key area as well.

“Last week, OZ Minerals shareholders voted overwhelmingly in favour of BHP’s offer. We are now focused on the safe integration of the two businesses and we look forward to building an internationally competitive copper business in South Australia and incorporating West Musgrave into our nickel options in Western Australia,” BHP CEO Mike Henry said.

“We are pursuing growth options in copper and nickel globally – we aim to have up to 10 drill rigs on the ground at Oak Dam in South Australia in the next few months and have seen promising results from a potential new copper prospect in Arizona.

“In Canada, we signed $260 million (CAD) in new contracts with Indigenous suppliers in March, and construction of the Jansen potash project is on track.”

Oh yeah, iron ore

BHP’s Pilbara mines remain on track to hit their guidance range of 278-290Mt after turning out 66.2Mt in the March quarter, down slightly on the March quarter last year but 11% down quarter on quarter.

The world’s biggest miner has shipped 1% more year to date than in FY22, exporting 212.6Mt through the first nine months of FY23 from WAIO, or 188.5Mt on an attributable basis.

The Samarco JV with Vale has shipped 3.3Mt year to date, up 7%, including a 5% lift March quarter YoY to 1Mt (4% down QoQ).

Lower volumes came after the shutdown in February following the death of railyard worker Jody Byrne in an on-site incident.

“Safety is paramount, and we are deeply saddened by the tragic death of Jody Byrne in an incident at Port Hedland in February. An investigation into the cause of the incident is underway, the findings of which will be shared widely,” Henry said.

BHP expects costs at WAIO to come in at the upper end of its guidance range of US$18-19/t.

It has also maintained copper guidance despite mine issues at Escondida in Chile, also flagged by JV partner Rio Tinto (ASX:RIO) yesterday, which have seen the world biggest copper mine’s guidance lowered from 1.08-1.18Mt to 1.05-1.08Mt.

But BHP’s general copper division will still produce 1.635-1.825Mt with overall year to date production (1.2403Mt) up 12% and March quarter output of 405,900t up 10% YoY.

Olympic Dam in particular is up 88% YoY to 155,800t, though March quarter production, while 33% higher YoY, was down 5% on the December quarter. BHP expects to hit the upper end of guidance at Pampa Norte (240-290,000t) and OD (195-215,000t).

Labour issues settling down in coal heartland, nickel production hit

Meanwhile wet weather at Mt Keith and well-publicised issues with off-spec arsenic levels in ore delivered to BHP’s Kambalda concentrator by Mincor Resources (ASX:MCR) resulted in a drop in nickel guidance from 80-90,000t to 75,000-85,000t. BHP has produced 58,000t of nickel metal in FY2023 to date, 19,600t in the March quarter.

At its coal mines in Queensland, production at BMA fell two per cent to 41Mt YTD, forecast now to come in at the bottom end of its 58-64Mt impacted by the highest nine month rainfall tally in a decade.

At the Mt Arthur thermal coal mine in NSW, BHP says production fell 4% to 9Mt YTD due to the impacts after wet weather in the December half, but guidance remains unchanged at 13-15Mt with labour issues subsiding and productivity on the rise.

BHP has also delivered its 0.175Mt allocation of coal under NSW’s new domestic reservation policy at a price cap of $125/t, below its cost guidance. 700,000t is expected to be delivered in FY24 in line with those directions.

On a macro basis, BHP’s Henry says conversations with customers show Chinese and Indian demand for commodities is strong.

“Recent engagements with customers in China and India have reaffirmed our positive outlook for commodity demand, with China’s economic rebound and solid momentum in India’s steelmaking growth helping to offset the impact of slowing growth in the US, Japan and Europe,” he said.