The Motley Fool

BHP on track for big growth

The world’s biggest miner, by market capitalisation, BHP Billiton (ASX: BHP) is on track to continue growing production volumes in many of its products, despite falling commodity prices.

The company is expected to produce more than 180 million tonnes of iron ore in the 2013 financial year, and strong growth is expected in 2014, as the company’s Jimblebar iron ore mine enters production in early 2014. BHP produced 82 million tonnes of iron ore from its Pilbara operations in the six months to December, a slight rise over the same period in 2011.

Upgrades to infrastructure at Port Hedland means BHP now has the capacity to produce up to 220 million tonnes a year. By comparison, competitor Rio Tinto Limited (ASX: RIO) produced 250 million tonnes and is targeting production of 353 million tonnes by 2015. Fortescue Metals Group (ASX: FMG) is targeting 155 million tonnes of iron ore production annually.

BHP also announced an 11% rise in production of oil and gas, compared to the previous year, and is on track to meet its forecast of 240 million barrels of oil equivalent in the 2013 financial year.

Copper production rose to 295,000 tonnes in the December quarter, and BHP says its Escondida mine in Chile is expected to increase production by 20% this financial year. Both BHP and Rio are heavily focused on exploring for and producing copper. The commodity is expect to have better long-term prospects than iron ore, as copper is used in many consumer goods, such as dish washers, fridges, cars and electronic equipment. As standards of living rise across the globe, demand for consumer goods is expected to rise, so too is the demand for copper.

On the down side, BHP’s nickel and aluminium divisions continue to face pressure from low commodity prices, high costs and the strong Australian dollar. Some analysts believe they may even be jettisoned, as the company focuses on its other core products like iron ore, coal, oil and gas, copper and potash.

The Foolish bottom line

As we’ve mentioned several times, BHP’s diversity, exposure to oil and gas, copper and increasingly to potash, makes BHP a much better bet for Foolish investors looking for a solid resources play. While Rio Tinto’s iron ore production costs are as low as US$24 a tonne (according to the Australian Financial Review), Rio is heavily exposed to fluctuations in the spot price of the commodity. With massive iron ore supplies coming online globally, the iron ore price is likely headed in one direction over the medium to long term – down.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in BHP.

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