Anglo-Australian corporation BHP Billiton (ASX, NYSE: BHP; LON: BLT; JSE: BIL) has a history in the mining business exceeding 150 years, and it shows in the company’s ubiquity. Dual-listed in the UK and Australia following the merging of Australia’s Broken Hill Proprietary Company Limited with Anglo-Dutch company Billiton PLC in 2001, the company now has operations in 25 countries and employs around 41,000 people. Its business sprawls across a wide range of resources, including aluminium, manganese, nickel, coal, copper, iron ore, potash and even petroleum.
At the conclusion of financial year 2014 (FY14), BHP seems bigger than ever. Despite market conditions that weren’t particularly propitious, the company’s annual Operational Review highlighted a 9% increase in total group production and new annual records set across a staggering 12 operations and four commodities. Overall group production is expected to grow 16% over the next two years to the end of FY15.
Speaking within the Operational Review, BHP CEO Andrew Mackenzie attributes the company’s improved operating performance to its focus on productivity and endeavours to highlight its best-performing business divisions.
“Western Australia Iron Ore and Queensland Coal annual production exceeded guidance, with both rising by more than 20% as we delivered more tonnes from existing infrastructure and growth projects ahead of schedule,” Mackenzie says.
“At Escondida [BHP’s copper operations in Chile], an increase in mill throughput and concentrator utilisation offset copper grade decline, while our Onshore US business delivered a 73% increase in petroleum liquids production.”
Iron ore and coal at the forefront
BHP’s Western Australian Iron Ore (WAIO) business benefited in the 2014 financial year from the early commissioning of the Jimblebar mine, located 40 kilometres east of Newman in the Pilbara region, which cost BHP US$3.2 billion to build. The mine delivered its first production in the first quarter of FY 2014 ending in September 2013, and was officially opened on 23 April 2014 in the company of Western Australia Premier Colin Barnett, as well as that of joint venture participants ITOCHU Corporation and Mitsui & Co. Ltd.
Having begun operations ahead of schedule, the Jimblebar mine is now expected to ramp up to 35 million tonnes per annum (mtpa) before the end of the 2014 calendar year, rather than the end of FY15 as previously forecast. BHP expects this to support a further 20mt increase in total WAIO production in FY15 to approximately 245mt. In the longer term, BHP aspires to increase WAIO production to 270mtpa as a result of removing bottlenecks from the supply chain and ramping up Jimblebar production further to 55mtpa.
BHP’s Queensland Coal business achieved record production and sales volumes in FY14 as a new mine came online, another ramped up and others produced more coal than ever before. Part of the company’s overall 45mtpa of metallurgical coal production came from the first production from the Caval Ridge Mine in the Bowen Basin, operated by BHP and Mitsubishi’s 50/50 joint venture BHP Billiton Mitsubishi Alliance (BMA).
The successful ramp-up the Daunia mine, also in the Bowen Basin and operated by BMA, also contributed to the increase in metallurgical coal production, as did the achievement of record production rates at the Peak Downs and Saraji mines operated by BMA, as well as the South Walker Creek and Poitrel mines operated by BHP Billiton Mitsui Coal (BMC), a joint venture with Mitsubishi of which BHP owns 80%.
BHP forecasts that the imminent ramp-up of the Caval Ridge Mine will increase its overall metallurgical coal production by 4% in FY15, bringing the total to 47mtpa.
Copper, petroleum and energy coal
As mentioned by CEO Andrew Mackenzie above, BHP’s copper and petroleum businesses also exceeded expectations. Copper production at Escondida in Chile increased by 2% in FY14 to 1.7mtpa. This is on track to increase to 1.27mtpa in FY15, leading a 5% increase in copper production across the entire BHP group to 1.8mtpa.
Petroleum production of 246 million barrels of oil equivalent (mmboe) exceeded guidance in FY14 and was 4% higher than achieved in FY13. BHP’s Onshore US business did particularly well, increasing its production by 73% and driving the group’s total produced liquid volume up 18% higher than achieved in FY13. BHP expects to increase its petroleum production by 5% in FY15 to 255mmboe, and to increase its high-margin liquids volumes by 16mmboe.
The Operational Review for FY14 states that BHP remains confident that its Onshore US business will be strongly EBIT positive in the 2015 financial year as the liquids contribution rises to approximately 40% of total shale production. In CEO Andrew Mackenzie’s concluding statement, he looks toward FY15 with great positivity.
“We expect to maintain strong momentum and remain on track to generate group production growth of 16% over the two years to the end of the 2015 financial year,” he says.
“In Petroleum, we are investing in our highest-return acreage while a broader improvement in productivity is expected to underpin stronger iron ore, copper and metallurgical coal volumes. We will remain focused on value over volume as we prioritise our brownfield development options and consider the next phase of portfolio simplification.”
In FY14, BHP delivered first coal from its Newcastle Third Port Stage 3 project in New South Wales, Australia, as well as its Cerrejón P40 project in Colombia. More importantly, it completed an impressive six projects:
* The WAIO Jimblebar Mine Expansion project, mentioned previously;
* The Caval Ridge metallurgical coal mine, mentioned previously;
* The $1.5 billion Macedon domestic gas project in Onslow, Western Australia;
* The North West Shelf North Rankin B Gas Compression project, 135 kilometres offshore Karratha, Western Australia;
* The WAIO Port Blending and Rail Yard Facilities project, involving BHP’s facilities at Port Hedland; and
* The Fourth Pellet Plant project at the Samarco iron ore mine in Brazil.
At FY14’s close BHP has eight projects under development with a combined budget of $14.1 billion. The company says that these are low-risk and largely on brownfield sites. BHP has increased the budget for the Escondida Oxide Leak Area Project at its Chilean copper operations by $212 million, bumping up the total spend for the project to $933 million. The project is scheduled for completion before the end of calendar year 2014.
The markets treated the world’s largest mining company relatively well this year, enabling it to sell every one of its products for a higher average realised price than achieved in FY13. The largest upgrades in price were for US-based natural gas, which sold for a quarter more in FY14 compared with FY13, and hard coking coal that sold for 20% more. Next came natural gas, whose price increased by 16% year-over-year, followed by weak coking coal and thermal coal, whose prices rose by 14%.
Financial transactions completed by the BHP group over the last two years – concerning petroleum, copper, iron ore, coal, mineral sands, uranium and diamonds assets across Australia, the US, Canada, South Africa and the UK – exceeded $6.7 billion. As we enter FY15, the global resources giant says it will continue seeking to simplify its massive asset portfolio in order to maximise value for its many, many shareholders.