BHP Post Record Iron Ore Sales Volume Boosting FY22

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BHP Post Record Iron Ore Sales Volume Boosting FY22 Operational Performance

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  • Copper production volume down 4 percent in FY22, offset by 9 percent higher average realised prices compared to prior year
  • Metallurgical coal production volume down 9 percent to 29.1 Mt and Energy coal production volume down 4 percent 13.7 Mt
  • Average realised coal price achieved is up 225 percent in FY22, compared to the prior year
  • Production from the US$5.7 billion potash project has been brought forward a year to 2026
  • Broader market volatility and inflationary pressures to continue through the 2023 financial year
  • War on Ukraine, the unfolding energy crisis in Europe and policy tightening globally, is likely to result in slower global growth
  • Commodity portfolio aligned with the global decarbonisation and electrification should support earnings growth, despite a slowing world economy

BHP is a world leader in producing and processing mineral commodities. It has 80,000 employees and contractors, based primarily in Australia and the Americas. BHP is the world’s lowest cost major producer of iron ore. The Company also produces copper, nickel and metallurgical coal at scale and has committed to a significant investment in potash, a natural ingredient for fertilizer.

FY22 Operational Review

BHP has reported a strong operational performance for the 2022 financial year, on the back of record full-year sales volumes of iron ore. Iron ore production volume in FY22 at 253.2 Mt was in line with FY21 production volume of 253.5 Mt. The Western Australia based iron ore business was buoyed by reliable operational performance and the continued ramp up of the South Flank project. This project is BHP’s largest new iron ore mine in more than half a century and cost US$3.6 billion before delivering its first ore in May 2021. Today it is one of the largest iron ore mining operations in the world.

Copper production in FY22 was 1573.5 kt, down 4 percent on FY21. Copper prices are close to all-time highs as the world transitions to decarbonisation and electrification, driving up global demand after a decade of under-investment in new mines. Average realised prices for copper were 9 percent higher in FY22, compared to the prior financial year.

Metallurgical coal production came in at 29.1 Mt, down 9 percent compared to the FY21 production volume of 31.9 Mt. Energy coal production volume was 13.7 Mt for the year, down 4 percent on FY21. Production was impacted by wet weather and COVID related impacts earlier in the year, although production volume improved significantly in the June quarter. The striking feature about BHP’s coal sector performance is the 225 percent higher average realised prices achieved in FY22, compared to the prior year. BHP is assessing the impact of the Queensland government increase in coal royalties stating that Queensland now has one of the world’s highest coal royalty regimes.

BHP’s US$5.7 billion potash project in Canada is tracking to plan, with initial production scheduled for 2026. This is a year earlier than initial estimates. US$3 billion has been expended on this project to date. The strategic significance of this project is that potash is necessary to replenish soil with nutrients that have been gradually depleted after many years of intensive cropping. Potash is a natural fertiliser that is essential to maintain cropping and global food production.

FY23 Production Guidance and Outlook

BHP CEO Mike Henry considers that broader market volatility and inflationary pressures will continue through the 2023 financial year, along with tight labour market conditions and supply chain constraints. On a positive note, Henry expects China to contribute positively to growth as stimulus policies take effect. However, he cautioned that the continuing conflict in the Ukraine and the unfolding energy crisis in Europe and policy tightening globally, is likely to result in an overall slowing of global growth.

Against this background of economic headwinds, BHP production guidance is neutral to slightly negative for its commodities. FY23 iron ore production is estimated to be in the range of 249-260 Mt, implying a minus 2 percent to a positive 3 percent range. Copper production is estimated to rise by 4-16 percent in FY23 while Metallurgical coal and Energy coal production volumes are estimated to be in the range of 0-10 percent and minus 5 to positive 9 percent, compared to FY22.

BHP’s commodity portfolio is increasingly being aligned with the global push for decarbonisation and electrification. Copper, nickel and steel will continue to support this global energy transition, while demand for potash will grow in support of the dietary requirements of a growing world population.

Demand growth for several of these commodities should support a continuation of prices near current levels, leaving BHP well positioned to benefit from this transition despite a slowing world economy.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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