In Commodity News 25/02/2015
BHP Billiton said Tuesday, February 24, it had reduced iron ore production costs in Western Australia by 29% in the July-December half of fiscal 2014-2015 and was “well placed” to produce the steelmaking raw material for less than $20/mt.
This would bring BHP’s C1 costs closer to those of rival Rio Tinto, which said earlier this month it achieved average cash costs of $18.74/mt in the July-December half.
C1 costs do not include freight, royalties and other corporate costs, but even with spot prices in the low $60/mt CFR range, the two large miners would be achieving healthy margins.
BHP said it achieved an average of $70/wet mt FOB for iron ore sales in July-December.
Presenting BHP’s interim result to media from Melbourne, CEO Andrew Mackenzie said “most price falls we saw coming and planned for,” and reasserted that ongoing productivity gains was one of BHP’s major priorities.
“In less than three years, we have improved efficiencies by 30%. We’ve been cutting costs faster than anticipated. In the last six months alone we’ve cut unit costs at Western Australian iron ore by 29%,” he said.
UBS analysts said in response that BHP’s cost-reduction program in Western Australia was “two years ahead of target,” while JP Morgan analysts noted the miner’s “cost out was impressive, particularly in iron ore.”
BHP said it reduced unit cash costs at its metallurgical coal operations in Queensland by 15%, taking average production costs to $70.75/mt, excluding freight and royalties.
This was achieved by stronger production and equipment and wash-plant utilization rates, along with lower labor, contractor and maintenance costs.
Mackenzie described China’s economy as “steady as she goes,” noting that urbanization continued and the transition to a consumption-driven society was being “managed well” by the Chinese government.
“It bodes well for demand for our products,” he said.
On BHP’s Nickel West mine and smelter in Western Australia, which it failed to sell last year, Mackenzie said the operation had been “re-integrated” back into the company and productivity would be improved over “what will be a relatively short life we feel.”
JUL-DEC EBIT FALLS 32% ON YEAR ON LOWER COMMODITY PRICES
BHP reported total earnings before interest and tax of $8.8 billion for July-December, down 31.8% on last year’s $12.9 million due to lower commodity prices.
Revenue for the period totaled $29.9 billion, down 11.9% year on year.
The main declines were seen in the prices of oil, copper, iron ore, coking coal and manganese ore.
The average realized price during the six months for oil — both crude and condensate — was $85/barrel, down 17% year on year; copper was $2.98/lb, down 11%; iron ore was $70/wmt, down 38%; hard coking coal was $110/mt, down 23%, weak coking coal was $92/mt, down 21%; and manganese ore was $4/dmtu, down 18%.
However, some of the metals showed an increase in prices during the period. The average realized price for alumina was $330/mt, up 13% year on year; aluminum was $2,378/mt, up 19%; and nickel was $16,757/mt, up 23%.
