• BHP hit by weather, sees coal volumes plummet
  • Prices are still out of this world though, and guidance, like the song, remains the same
  • Iron ore output lifts 3% YoY, on track for upper end of guidance early doors

BHP (ASX:BHP) saw its thermal coal and met coal output fall 33% and 19% respectively in the September quarter compared to the previous year, with three times the amount of rain as the previous year at its Mount Arthur energy coal mine near Muswellbrook stalling production.

BHP said coal production at the New South Wales Energy Coal business slid 38% year on year to 2.62Mt, with met coal down 1% year on year to 6.662Mt (or 13Mt on a 100 per cent basis), but has kept its guidance in tact on both counts.

But thermal coal remains near record highs, fetching US$392/t yesterday, with coking coal for steelmaking in the high US$280s, signalling the scale of the shortage in coal markets which would only have been exacerbated by the weather-related delays for BHP and other coal miners in the September quarter.

BHP said 85% of its NSWEC coal sales were higher quality thermal coal, against 70% a year ago.

It means BHP and others will likely be little effected by production issues on the balance sheet, with the world’s biggest miner expecting to make up the shortfall later in the year.

The world’s biggest miner has set up its stall as a supporter of metallurgical coal — but not thermal coal — as a key component of its portfolio, even as its strategy shifts to prioritise investments in “future facing commodities” like nickel, copper and potash.

It only kept hold of NSWEC last year after failing to find a buyer, promising to wind the operations down over the course of the decade. Until then it will enjoy, for now at least, a major windfall.

In Queensland, BHP said record wet weather and labour shortages hurt production, though it was down just 1% on a year earlier.

BHP continues to take aim at the Queensland Government’s royalty regime as well, threatening to stall investments in the State while the system, which charges coal miners 40% of sales for coal, sold at more than $300/t Australian, is in place.

“The near tripling of top end royalties by the Queensland Government remains a serious concern and threat to investment and jobs in that state,” BHP said in today’s operational review.

“We see strong long-term demand from global steelmakers for Queensland’s high quality metallurgical coal. In the absence of fiscal terms that are both competitive and predictable, we are unable to make significant new investments in Queensland.”


Iron ore, copper, nickel steady

While coal production fell, BHP started the year on a path to hit the upper end of guidance at its WA Iron Ore operations in WA’s Pilbara, with production up 3% YoY to 72.1Mt on a 100% basis and 1% on the previous quarter.

BHP produced 63.9Mt on an equity basis along with 1.1Mt from the Samarco JV with Vale in Brazil. It has told investors to expect 278-290Mt from WAIO in FY23.

Copper guidance remained unchanged as well at 1.635-1.825Mt, with BHP’s production of 410,100t up 9% YoY but 11% down on the June quarter.

Olympic Dam, the focus of a now quiet $8.4b bid for neighbour copper miner OZ Minerals (ASX:OZL), saw production lift 68% YoY to 49,700t (but down 11% on the quarter).

Nickel West meanwhile saw production lift 16% YoY and 10% QoQ to 20,700t after the end of unplanned maintenance at the Kalgoorlie Nickel Smelter.

“We have started the new financial year strongly, achieving safe and reliable operating performance. The first quarter included significant planned major maintenance in Western Australia Iron Ore (WAIO), BHP Mitsubishi Alliance (BMA), and Olympic Dam,” BHP CEO Mike Henry said.

“Copper production was up nine per cent on the same quarter last year, with strong concentrator throughput at Escondida and record quarterly anode production at Olympic Dam.

“WAIO continued to perform strongly, with production up by 3% relative to the same period last year, and we managed through substantial rainfall and labour constraints in our coal assets with production only down marginally year on year.

“Our full year production and unit cost guidance is unchanged.”

On the macro front, Henry expects short term economic issues to continue.

“We expect global macro-economic uncertainty in the short term to continue to affect supply chains, energy costs, labour markets and equipment and materials availability,” he said.

“BHP remains well positioned, with a portfolio and balance sheet to withstand external challenges and a strategy positioned to benefit from the global mega-trends of decarbonisation and electrification.”

RBC’s Kaan Peker and Tyler Broda said BHP’s commitment to delay capex at its Queensland coal operation could put consensus FY24 estimates of 33-34Mt (equity basis) at risk, but overall said there was little out of the ordinary in BHP’s results.

“Not too much to note. More iron ore is in the market with a strong quarter at WAIO coming on the back of a beat from VALE and RIO hitting expectations,” they said in a note.

“The weather impacting coal is a one-off and the copper production miss is more noise than anything structurally concerning in our view.”


BHP (ASX:BHP) share price today: