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BHP Group – Soft result for December quarterly activities

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

BHP Group (ASX: BHP) is Australia’s largest resource company that specialises in extracting and processing minerals, oil and gas. BHP main operations are within Australia and the Americas. BHP has a market capitalisation of A$106 billion.

The main points for BHP Quarterly Activities are as follows:

  • Production (MMboe) for petroleum for the December Q19 (vs September Q19) is down 4%.
  • Production (kt) for copper for the December Q19 (vs September Q19) is up 6%.
  • Production (Mt) for iron ore for the December Q19 (vs September Q19) is down 1%.
  • Production (Mt) for metallurgical coal for the December Q19 (vs September Q19) is up 17%.
  • Production (Mt) for energy coal for the December Q19 (vs September Q19) is up 8%.
  • Production (kt) for nickel for the December Q19 (vs September Q19) is down 37%.


BHP Group

What are the main drivers of these result?

The main increase in production activities for the December quarter is metallurgical coal and energy coal. Metallurgical coal production for the December quarter is up strongly due to higher volumes following the completion of significant planned wash plant maintenance activities in the prior quarter. Energy coal production for the December quarter increased due to higher volumes at the NSW coal mines as a result of a higher average strip ratio in the prior quarter, and higher volumes at Cerrejon due to adverse weather in the prior quarter.

The main disappointment from the results is the sharp decrease in the production of nickel in the December quarter. The decrease of production can be attributed to the impact of a major quadrennial maintenance activities at the Kwinana refinery and Kalgoorlie smelter. Also, soft iron ore production is a little disappointing given the current strength in iron ore prices.


What is the outlook for BHP?

The outlook for BHP remains unchanged from FY19. During the September quarter 2019, BHP management approved an investment of US$283 million for the development of the Ruby oil and gas project in Trinidad and Tobago. Additionally, BHP has six major projects under development in petroleum, copper, iron ore, and potash with the combined budget of US$11.4 billion over the life of the projects. The Jansen Stage 1 potash project in Canada will be considered by the Board for final investment decision by February 2021. These investments should allow production to remain constant in the coming financial years.

BHP noted that at the Oak Dam project in South Australia the third phase of the drilling program commenced in November 2019 and is expected to be completed in the June 2020 quarter. This follows encouraging results from the previous drilling phases, which confirmed high-grade mineralised intercepts of copper, with associated gold, uranium and silver. This could represent a significant new project for BHP.


What is the market reaction?

The market reaction to BHP quarterly activities report is slightly negative. BHP is down 0.6% and is currently trading at A$41.00. However, the slight drop in the share price could be more attributed to the Australian market being down around 0.5% today. BHP has a forward P/E ratio in the low-teens and an annual dividend yield of 4.7%.



This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
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ASR has no position in any of the stocks mentioned.
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