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10 key things you need to know from BHP Billiton Limited’s operational report

BHP Billiton Limited (ASX: BHP) has today released its operational review for the nine-months ended 31 March 2015, reporting a strong increase in group production and confirming that its focus on productivity is still paying dividends.

In its report, the mining heavyweight said that group production had increased by 9% over the nine-month period, whereby records had been achieved for 10 operations and 5 commodities. Meanwhile, it also managed to increase full-year production guidance for iron ore by 2% (more on that below).

While there is always the argument that their higher production levels are actually contributing to the recent commodities crisis, BHP’s CEO Andrew Mackenzie said that: “Our commitment to sustainably improve productivity and lower costs is helping mitigate the impact of subdued commodity prices and supporting returns for shareholders.”

Here are 10 of the key facts you need to know from today’s report:

  1. Total iron ore production increased by 17% to a record 172 million tonnes (Mt) with production guidance being increased by 2% to 230 Mt for the 2015 financial year (FY15).
  2. Western Australia Iron Ore (WAIO) production increased by 16% to a record 188 Mt (100% basis) and is now expected to hit 250 Mt for the 2015 financial year.
  3. Productivity improvements have helped drive WAIO unit costs below US$20 per tonne. Further improvements are becoming vital as commodity prices continue to sink, impacting the miner’s margins.
  4. Petroleum production rose 6% to a record 193 million barrels of oil equivalent (MMboe).
  5. Guidance for petroleum production in FY15 remains unchanged at 255 MMboe.
  6. As expected, BHP reduced its number of rigs drilling in its onshore US business by 35% during the quarter. With higher oil prices expected over the medium term, it will defer production until a later date.
  7. Metallurgical coal production jumped 14% to 37.8 Mt.
  8. Management has increased its metallurgical coal production guidance by 4% to 49 Mt.
  9. Copper production has risen by 2% over the nine-month period to 1.3 Mt.
  10. Heavy rainfall in northern Chile in March, together with an electrical failure that caused a mill outage at Olympic Dam earlier in the year have resulted in a downward revision for full-year copper production. BHP now expects to produce 1.7 Mt, a 6% decrease on prior guidance.

BHP’s strong report follows those of fellow iron ore miners Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) – both of which have impressed the market over the last week.

Should you buy BHP Billiton shares?

Given its enormous production capacity, low-cost operations and high level of diversification, BHP Billiton certainly remains my miner of choice. However, while the stock might look tempting at current levels around $31 a share, investors need to remember the headwinds facing the commodities sector and the risks involved with having such a stock in your portfolio.

With two of BHP’s key commodities (iron ore and petroleum) expected to continue falling in price in the near-term, investors would be wise to remain on the sidelines, for now.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned. You can follow Ryan on Twitter @ASXvalueinvest.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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