BHP share price on watch following Q3 update

BHP has handed in its third quarter report card…

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Key points

  • BHP has released its third quarter operational update
  • COVID-19-related labour disruptions weighed on many of its operations
  • Despite this, BHP has reaffirmed the majority of its production guidance for FY 2022

All eyes will be on the BHP Group Ltd (ASX: BHP) share price on Thursday.

This follows the release of the mining giant’s third quarter update this morning.

What happened during the quarter?

For the three months ended 31 March, BHP delivered iron ore production of 59.7Mt. This was flat quarter on quarter and means that year to date production remains down 10%.

Management notes that this reflects temporary labour constraints due to COVID-19, train driver shortages, and planned maintenance activities at Western Australia Iron Ore (WAIO). This was partially offset by record production from the MAC hub with the continued ramp up of the South Flank.

BHP’s copper production came in at 369.7kt, which was up 1% quarter on quarter. This was driven by higher volumes at Olympic Dam following the completion of planned smelter maintenance campaign, which was partially offset by lower volumes at Escondida due to COVID-19 workforce impacts and public road blockades following social unrest. Year to date copper production is now down 10%.

Nickel production was down 13% quarter on quarter to 18.7kt. This means that year to date nickel production is also down 13%. Temporary labour constraints were also to blame.

BHP’s metallurgical coal production rebounded during the quarter thanks to lower rainfall and a strong operational performance. It rose 20% quarter on quarter to 10.6Mt, which means year to date production is now down only 2%.

Elsewhere, energy coal production was down 13% to 2.6Mt and petroleum production reduced 6% to 24.1MMboe.

Management commentary

BHP’s Chief Executive Officer, Mike Henry, appear pleased with the quarter, all things considered. He said:

“BHP delivered safe and reliable production in the third quarter. Our WA iron ore business continues to perform strongly as we navigate the state’s first major COVID-19 wave, and we remain on track to achieve full year volume and cost guidance. Amid record high prices, our Queensland metallurgical coal business delivered strong underlying performance and benefited from better weather in the quarter.

In copper, Spence production is increasing and the Olympic Dam smelter is performing strongly as it returns to full production following planned maintenance. These gains have been more than offset at Escondida by impacts from COVID-19 and public road blockades in Antofagasta, which are reflected in a revision to overall production guidance.”

Mr Henry also spoke about inflationary pressures that are impacting the sector. He commented:

“Market volatility and inflationary pressures have increased further as a result of the Russian invasion of Ukraine. We continue our work to mitigate cost pressures through a sharp focus on operational reliability and cost discipline. While we expect conditions to improve during the course of the 2023 calendar year, we anticipate the skills shortages and overall labour market tightness in Australia and Chile to continue in the period ahead.”

Outlook

BHP has reaffirmed its FY 2022 production guidance for iron ore, metallurgical coal, and energy coal. However, it has lowered its copper and nickel production guidance.

It has also reaffirmed its full year unit cost guidance for WAIO, Escondida, and Queensland Coal, but has increased its guidance for New South Wales Energy Coal. The latter reflects a targeted increase in the proportion of higher quality coal to capture more value from the record high prices for higher quality thermal coal.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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