BHP share price higher amid record first half iron ore production

BHP has released its second quarter update…

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Key points

  • BHP has released its second quarter and first half update
  • The mining giant delivered record iron ore production from WAIO during the first half
  • BHP has also beaten Goldman Sachs' estimates for other commodities

The BHP Group Ltd (ASX: BHP) share price is on the rise on Thursday.

At the time of writing, the mining giant's shares are up 0.5% to $49.30.

This follows the release of the miner's second quarter update this morning.

BHP share price higher on second quarter update

For the three months ended 31 December, BHP reported iron ore production of 66.9Mt, which was up 3% quarter on quarter. This was underpinned by record production at WAIO in the month of December thanks to strong supply chain performance and reduced impacts of labour constraints and wet weather.

This means for the first half, BHP achieved record iron ore production of 132Mt, which represents a 2% increase over the prior corresponding period.

In respect to pricing, for the six months, BHP commanded an average iron ore price of US$85.46 per tonne, down 25% from the same period last year.

BHP's copper production came in at 424.3kt for the second quarter, up 3% quarter on quarter. Management advised that this was driven by higher volumes at Escondida due to higher throughput, higher concentrate volumes at Spence reflecting the ramp up of the Spence Growth Option, and strong volumes at Olympic Dam as a result of planned refinery maintenance in the prior period.

For the first half, the Big Australian's copper operations delivered production of 834.4kt (up 12% year on year) and achieved an average realised price of US$3.49 per pound.

Given how strong coal prices are right now, investors will be pleased to learn that BHP's metallurgical coal and energy production improved during the quarter. BHP reported met coal production of 7Mt (up 4% quarter on quarter) and energy coal production of 2.9Mt (up 9% quarter on quarter).

Management revealed that its met coal production growth was driven by higher volumes due to improved strip ratios and the planned longwall move at Broadmeadow in the prior period, partially offset by continued significant wet weather. This took its first half met coal production to 13.6Mt.

BHP's higher energy coal volumes was the result of improved operating conditions, including less significant wet weather impacts and reduced labour shortages in the quarter, partially offset by planned wash plant maintenance completed in November. For the half year, BHP's energy coal production came in at 5.5Mt for the half (down 24% year on year).

Finally, BHP's nickel production fell 14% during the quarter to 17.7kt due to planned maintenance. This led to its half-year nickel production falling 2% to 38.4kt.

How does this compare?

According to a note out of Goldman Sachs, its analysts were expecting:

  • Iron ore shipments of 74.8Mt
  • Copper production of 420kt
  • Met coal production of 6.9Mt
  • Nickel production of 16.1Mt

This means BHP has beaten Goldman's copper, met coal, and nickel estimates, which may explain why the BHP share price is edging higher today.

However, its iron ore "sales" of 72.688Mt on a 100% basis may indicate that its shipments have fallen short of expectations.

Outlook

BHP's production guidance for FY 2023 remains largely unchanged. The only small changes that have been made are Escondida and BHP Mitsubishi Alliance (BMA) trending to the low end of their respective guidance ranges.

In respect to costs, the company's full-year unit cost guidance is unchanged for Escondida and WAIO. However, unit costs for BMA and New South Wales Energy Coal (NSWEC) have been increased, largely reflecting production impacts from significant wet weather and inflationary pressures.

BHP CEO, Mike Henry, appears positive on the second half thanks to China's reopening. He commented:

BHP believes China will be a stabilising force when it comes to commodity demand in the 2023 calendar year, with OECD nations experiencing economic headwinds. China's pro-growth policies, including in the property sector, and an easing of COVID-19 restrictions are expected to support progressive improvement from the difficult economic conditions of the first half. China is expected to achieve its fifth straight year of over 1 billion tonnes of steel production.

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 Scott Phillips.

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