Must-know: BHP’s 4Q14 production results

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Must-know: An investor’s guide to BHP (Part 4 of 10)

(Continued from Part 3)

BHP’s 4Q14 production results

BHP’s financial year (or FY) 2014 production volumes were good with 9% increase in group production. The company guidance for FY15 is also encouraging with 6% average volume growth year-over-year (or YoY). The key growth areas for the company are iron ore and copper. They have a volume guidance of 11% and 6%, respectively, for FY15. We’ll discuss product-wise performance in this part of the series.

Iron ore

Western Australia iron ore (or WAIO) achieved a 14th consecutive annual production record as volumes increased to 225 million tons (or Mt). Iron ore production was up 3.3% over the full-year guidance provided earlier by the company. Now, the company guides for 245 Mt by FY15—another 11% increase. The increase of the low-cost Jimblebar will be the key driver to achieve the volume growth to 270 Mt on a 100% basis.

Copper

Copper volumes increased to 1.7 Mt as a result of improvement in mill throughput and concentrator utilization. The company expects to produce 1.8 Mt in FY15.

Petroleum

Petroleum production increased by 4% to 246 million barrels of oil equivalent (or MMboe) with an 18% increase in liquid volumes supported by significant growth at onshore U.S. and Atlantis. BHP expects production for this segment to increase by 5% in FY15. However, it expects the liquid production to increase to 40% of the total production, which is a higher margin.

Coal division

Metallurgical coal production of 45 Mt exceeded the annual guidance. The production from Queensland Coal came in at record high levels. Total coal production came in at 119 Mt. It’s expected to increase slightly to 120 Mt in FY15.

BHP Billiton’s (BHP) major peers in iron include Rio Tinto (RIO), Vale SA (VALE) and Fortescue Metals Group (or FMG). They’re increasing their iron ore supplies significantly to drive out the higher-cost supplies from domestic Chinese players and elsewhere. This is the main reason major producers are increasing iron ore. BHP’s smaller peer Cliffs Natural Resources (CLF)—which is the major iron ore producer in North America—is relatively higher cost. As a result, it’s in no position to expand. Exchange-traded funds (or ETFs) are another good way to gain exposure to the metals and mining sector without picking individual companies—like the SPDR S&P Metals & Mining ETF (XME).

Continue to Part 5

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