BHP 2: Record Profit Expected After Solid Production Year

Besides the expansion of its Chilean and Peruvian copper resources, BHP also achieved production records in four commodities with production of iron ore posting its 11th consecutive record.

BHP said annual production of iron ore was 134.4 million tonnes, up 8% from 2009-10.

BHP said that natural gas output rose by 10% on the year-ago period, while copper, alumina and manganese output also increased on the year-ago period, it said.

In fact BHP managed to boost output of oil and gas, iron ore and copper: all commodities which saw prices surge during the year.

As well, output of gold was up (thanks to the surge in Olympic Dam production) as prices hit new records during the year to June.

Silver output fell because of lower production from Cannington in Queensland.

Overall, BHP is on track for record earnings for the June 30 year of well in excess of $US22 billion after tax, compared to the record $US12.7 billion earned in the 2010 financial year.

That would be an increase of more than 70%.

UBS said in an early comment to clients yesterday that while some parts of the production report were better than expected (such as 4th quarter copper, coal and iron ore) it was not "expecting consensus of $US22.2 billion ($A20.77 billion) for FY11 NPAT (net profit) to move much on back of today's report".

The copper output increase came despite the expected fall in production at Escondida.

Zinc output, meantime, fell by 23% on a year earlier and diamond production declined 18% over the same period.

And the poor weather in Queensland in late 2010 and January and February of this year hit the company's coking (metallurgical) coal production which fell 13% on year to 32.678 million tonnes.

Production of petroleum products rose 1% to 159.38 million barrels of oil equivalent (MMBOE), while annual copper production, at 1.1394 million tonnes, was 6% higher.

Production of energy (thermal or steaming) coal was 69.5 million tonnes, up 5%.

Like its Pilbara rival, BHP said boosted June quarter iron ore production after the cyclone impacted the March quarter fall.

Production rose 14% on the June quarter of 2009-10 and was 7% above the rate of the March quarter.

That increase was timely, given that like Rio, BHP was selling into a booming iron ore market in the June quarter with prices up some 35% or more, based on spot price levels and the various price indexes.

BHP said output at its WA iron ore mines ran at an annual rate of 155 million tonnes in the June quarter, well above nominal capacity of around 134 million.

Actual shipments from the company's Pilbara iron ore mines rose 9.1% to a record 123.73 million tonnes in the year to June (BHP's share) from 113.39 million.

(Total shipments from the Pilbara were a record 145.56 million tonnes, up from $1.33.40 million.)

Shipments in the June quarter jumped a sharp 16% to 32.04 million tonnes from 28.67 million in the same quarter of 2010.

June quarter production of petroleum products rose 6% on the June 2010 quarter and jumped 21% from March quarter.

Global oil prices eased a bit towards the end of the quarter, but as we saw this week with Woodside, prices were still high enough to produce a sharp jump in revenue, which is what BHP will have enjoyed as well.

Highlighting the impact of the floods in the Queensland coal fields metallurgical coal output fell 28% from June but was up 19% on the March quarter.

BHP said yesterday that all force majeure declarations had been lifted at its Queensland mines and that it was now working with customers to sort out the backlog (and no doubt the pricing after coal prices jumped sharply in the March and June quarters).

"While production did improve in the June 2011 quarter ... we continue to expect production, sales and unit costs to be impacted, to some extent, for the remainder of the 2011 calendar year," BHP said in yesterday's report.

That slow recovery from the floods was a point made by the Reserve Bank in Tuesday's minutes from its July 5 board meeting.

Its one reason why GDP for this year will fall short of estimates (and why the economy contracted by 1.2% in the March quarter).

Energy coal output rose 13% in the June quarter from a year ago and was up 5% on the March quarter.

Like Rio Tinto, BHP has to thank its Hunter Valley coal mines for some of that improvement.

BHP shares rose 82c to $43.44, a rise of 1.9% on the day.