Solid results for BHP as Elliott steps up shake-up talks

Iron ore train - credit BHP Billiton

BHP Billiton has reached its full-year guidance for iron ore production over the last financial year, with the mining giant’s latest operational review showing annual record production at Western Australia Iron Ore and at two Queensland coal mines.

BHP said that the record annual iron ore production (a 4% increase) was a reflection of productivity improvements in its supply chain, including the completion of a rail renewal and maintenance program in May 2017, as well as the commissioning of a new crusher and additional conveying capacity at Jimblebar.

“Our people have stepped up to unlock low-cost latent capacity and achieve strong productivity gains across our tier one assets,” BHP CEO Andrew Mackenzie said.

Copper production took a hit, however, with the company seeing an 18 per cent decrease in output from its Olympic Dam operations following South Australia’s state-wide power outage last year.

BHP expects a boost in copper production in the 2018 financial year after it undertakes its largest maintenance program at the Olympic Dam site, which it expects will lead to an increase in capacity in the coming years.

Metallurgical coal production was down by 6%, in large part due to lower production at Queensland Coal after the damage inflicted upon Aurizon’s rail infrastructure by Cyclone Debbie. Force majeure was declared for Queensland Coal products on 5 April and was eventually lifted on 1 July 2017.

Two mines, at Peak Downs and Saraji, were nonetheless able to achieve record annual production targets, while three additional mines had been on track for the same before Cyclone Debbie hit.

Moreover, BHP’s Caval Ridge Southern Circuit latent capacity project is reportedly progressing as planned, with production expected to increase early in the 2019 financial year.

Initial funding of US$184 million was approved by BHP in June 2017 for the South Flank iron ore mine project, and will be used for expansion of accommodation facilities that will support construction and workforce requirements in the future. The project will be submitted to BHP’s board for approval in the middle of 2018.

The positive production results came as a pair of major BHP Billiton shareholders reportedly voiced their in-principle support for activist investor Elliott Management’s campaign for a restructure at the multinational mining and energy giant.

The Fairfax report is the latest development in an ongoing battle between Elliott and BHP, with the former accusing the latter of wasting the spoils of the mining boom by ‘thinking big’, “instead of thinking about shareholders”.

A website published by Elliott argues that BHP has wasted billions of dollars moving to a dual-listed structure, making share buybacks at inflated market prices, and investing in US shale and petroleum while creating “no apparent value” in the process.

BHP has rejected pressures to restructure and abandon its US shale efforts, but according to this week’s AFR report a pair of major shareholders – Australian Foundation Investment Company and Wilson Asset Management Company – are both interested in Elliott’s ideas after a meeting with the activist investor in Sydney.

“I actually think they have been helpful in the sense that they have brought into the public focus the fact that BHP has actually underperformed over the last three, five, to 10 years and nobody can deny that is true and management and the board aren’t denying that either,” AFIC managing director Ross Barker was quoted as saying. “We’ve got an open door. [Elliott] have come in to see us.”

Announcing an 8% growth in iron ore production in a quarterly announcement on Wednesday, BHP chief executive Andrew Mackenzie remained positive about the miner’s diversified business.

“Our relentless focus on safety, productivity and capital discipline will support strong growth in shareholder value,” he said.