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BHP retains full year guidance

Despite three cyclones hitting its Pilbara iron ore operations, BHP Billiton (ASX: BHP) has retained its guidance to produce 183 million tonnes for the full year to June 2013.

During the March quarter, BHP produced 40.2 million tonnes of iron ore, just 5% below the previous quarter, and has produced 122.2 million tonnes so far this year, which suggests the company expected to see production of around 60 million tonnes of iron ore this quarter. Annualised production is expected to hit 200 million tonnes of iron ore during the June quarter.

Coal production was hit by extreme weather conditions too during the March quarter, but metallurgical (coking) coal production still hit 9 million tonnes, while energy (thermal) coal in NSW saw production of 15.5 million tonnes.

BHP’s petroleum division produced less in the third quarter with 55.4 million barrels, but is still on target to deliver 240 million barrels of oil equivalent this year. Onshore US produced more than 5 million barrels of liquids, with Eagle Ford now the company’s largest liquids producing field. This division accounts for roughly one third of earnings, with the iron ore division making up around 50%.

Nickel production rose by 21%, and the company also announced its first official evaluation of its new Venus nickel discovery in Western Australia. Earlier this year, BHP said the discovery could reshape its struggling Nickel West operation, given its location close to existing mines and infrastructure.

Copper production was also higher, rising by 9%, with the giant Escondida mine in Chile on track to increase output by 20% this financial year.

Like its major competitor, Rio Tinto Limited (ASX: RIO), BHP has shelved some mega-projects, closed unprofitable mines, cut jobs and sold off non-core assets, like its diamonds operation but still has 19 major projects expected to complete before the 2015 fiscal year. CEO Marius Kloppers is set to retire next month, with incoming CEO Andrew MacKenzie stating he will focus on productivity and capital discipline.

Foolish takeaway

Expect more sales, job cuts and additional cost cutting measures from the world’s biggest miner, with expectations that iron ore prices will decline over the medium to long term. Australian operations could be the hardest hit, as labour costs have soared and the Australian dollar remains above parity with the US dollar. We’ve already seen Woodside Petroleum (ASX: WPL) can its James Price Point LNG plant because it had become uneconomic, and more companies are likely to follow.

Oil prices are set to rise dramatically over time. With limited supply — recent estimates suggest we only have enough oil to last 40 years — and growing demand from quickly expanding economies like India and China, oil prices can’t help but go up. Position yourself to profit from this trend now, with The Motley Fool’s brand-new FREE research report, 3 Oil Stocks to Send Your Portfolio Gushing Higher. Click here now, it’s FREE!

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 and Woodside.

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