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BHP share price on watch after full year update

The BHP Group Ltd (ASX: BHP) share price will be on watch this morning following the release of the mining giant’s fourth quarter and full year update.

How did BHP perform in FY 2019?

According to the release, BHP exceeded its full year production guidance for petroleum and achieved the revised guidance for copper and iron ore.

Things weren’t quite as positive for metallurgical coal and energy coal production, which were marginally below guidance. This was due to lower than expected wash plant yields and adverse weather impacts during the June 2019 quarter.

Petroleum production came in at 30MMboe in the fourth quarter and 121MMboe for the full year.  This was a 3% and 1% increase, respectively, on the previous quarter and year.

Copper production lifted 6% to 444kt in the June quarter and fell 4% over the 12 months to 1,689kt. The strong performance of its Chilean operations was offset by outages at Olympic Dam.

Iron ore production was flat for the year at 238Mt and up 12% quarter on quarter to 63Mt in the June quarter. A strong final quarter at its WAIO operation reflected a return to full capacity following Tropical Cyclone Veronica in March. On a WAIO 100% basis, production came in at 270Mt for the full year and 71Mt in the fourth quarter, down 2% and 1%, respectively.

Metallurgical coal production increased by an impressive 20% quarter on quarter to 12Mt in the final quarter. Full year production was down 1% to 42Mt.

Energy coal production rose 10% in the final quarter to 7Mt and was down 6% year on year to 27Mt.

Nickel production rose by a massive 49% to 29kt in the June quarter, reducing its full year decline to 6% at 87kt. The strong final quarter reflected the completion of final repairs and the ramp up of the Kalgoorlie smelter in the prior quarter.

How does this compare to expectations?

According to a note out of Goldman Sachs, it forecast iron ore production of 68.2Mt in the fourth quarter and full year production of 267Mt.

As you can see above, BHP beat the broker’s forecasts on a WAIO 100% basis with production of 71Mt and 270Mt.

In addition to this, BHP beat Goldman’s copper production estimate of 439kt and petroleum production estimate of 28Mmboe. It did, however, fall a touch short of its forecast for a 25% lift in met coal production to 12.4Mt.

What else happened?

One disappointment was that its underlying improvements in productivity were largely offset by the impact of unplanned production outages of US$835 million during the first half, grade declines in copper, and higher unit costs in coal.

As a result, a negative movement of approximately US$1 billion is now expected to be recorded for the 2019 financial year.

When the dust settles on this news I think BHP would be a good option for income investors along with Rio Tinto Limited (ASX: RIO) and this buy-rated bank share.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Scott Phillips.

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