BHP Quarterly Iron Ore Production Narrowly Misses Forecast

BHP Billiton Ltd., the world’s biggest mining company, said second-quarter iron ore output gained 16 percent, narrowly missing analyst estimates, as production of petroleum products slipped 4 percent.

Output of the steelmaking raw material was 48.9 million metric tons in the three months ended Dec. 31, from 42.2 million tons a year earlier, Melbourne-based BHP said today in a statement. That missed the 49.3 million ton median estimate of five analysts surveyed by Bloomberg. Petroleum production of 57.7 million barrels of oil equivalent missed a median forecast of 60.2 million barrels.

“Iron ore was a slight miss,” Evan Lucas, a Melbourne-based markets strategist at IG Ltd., said by phone. “Considering how much time and effort and money they’ve spent over the last three years on really ramping that petroleum business up whether it be oil or natural gas, it was disappointing.”

Mining companies are cutting costs to boost profitability as a decade-long boom in prices peaked. BHP’s result compares with the 7 percent increase last quarter at Rio Tinto Group’s iron ore operations, in line with analyst estimates.

BHP fell 0.8 percent to A$37.63 at the close of trading in Sydney. The company outperformed its global peers last year, gaining 2.4 percent compared with a 26 percent decline in the Bloomberg World Mining Index.

Productivity Agenda

“Our productivity agenda is in full swing and we expect to carry strong momentum into the second half of the financial year,” Chief Executive Officer Andrew Mackenzie said in the statement. “Volumes are expected to grow by 16 percent over the two years to the end of the 2015 financial year.”

Total iron ore output guidance was unchanged at 192 million tons for the 2014 financial year ending June 30. Vale SA, the world’s largest iron-ore producer, considers the recent drop in price in China as “transitory” because the Asian country’s economic fundamentals are solid, Chief Executive Officer Murilo Ferreira said yesterday.

Iron ore dropped 7.4 percent last year, and is forecast to decline until at least 2017, according to data compiled by Bloomberg. Prices have declined 8.2 percent since the start of the year, according to The Steel Index Ltd.

China Growth

Economic growth in China, BHP’s biggest customer, slowed to 7.7 percent in the fourth quarter compared with 7.8 percent in the previous three months as gains in factory output and investment spending eased. The world’s second-largest economy may expand at the weakest pace in almost a quarter century in 2014, a survey showed last month, as spending on infrastructure and factories moderates.

Demand for commodities will remain robust, even as China transitions to a consumption-led economy, Mike Henry, president of BHP’s marketing and technology unit, said in October. Citigroup Inc. moved its view on the mining sector to bullish from neutral for the first time in three years, analysts led by Heath Jansen and Jon Bergtheil said in a report last week.

“Improvements in European and U.S. growth are supportive for commodities and weakening commodity currencies are providing a fillip for the miners,” they wrote. “Against this backdrop the mining companies are cutting costs, improving balance sheets and aligning with shareholders.”

Cost Cuts

BHP trimmed controllable costs by $2.7 billion during fiscal 2013. Capital and exploration expenses for fiscal 2014 will be $16.1 billion as forecast, BHP said today, compared with $22 billion last year. The company received $2.2 billion from asset sales during the December half.

“We also remain committed to actively managing our portfolio for value,” Mackenzie said. “This strategy leaves us well positioned to deliver a substantial increase in free cash flow and higher returns to shareholders.”

Output of coking coal rose 30 percent to 11.5 million tons. Thermal coal output dropped 5 percent to 17.8 million tons, BHP said. Copper gained 6 percent to 439,900 tons from higher production at the Escondida mine in Chile.

Production at BHP’s Olympic Dam operation in South Australia will be affected by a 20-day planned smelter maintenance shutdown this half, it said. Production during the current financial year will be in line with fiscal 2013.

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