BHP posts record iron ore, coal outputs, but challenges persist

BHP posts record iron ore, coal outputs, but challenges persist

Mackenzie, who marks his first anniversary at the helm next month, flagged higher returns for shareholders.

World’s no.1 mining company BHP Billiton (ASX, NYSE:BHP) (LON:BLT) reported Wednesday strong increases in iron ore and metallurgical coal production for the final quarter of 2013, but the giant miner continues to face challenges as it looks to expand global operations.

BHP’s iron ore production rose 16% to 48.8m tonnes in the three months to the end of December, boosted by the early delivery of production from the new Jimblebar mine in the Pilbara, in Western Australia. Overall, the company reached a record of 98 million iron ore tonnes in the last half of 2013.

CEO Andrew Mackenzie, who marks his first anniversary at the helm next month, said in a statement that BHP was focusing on boosting productivity at its operations while maintaining strict financial discipline.

“This strategy leaves us well positioned to deliver a substantial increase in free cash flow and higher returns to shareholders,” he noted.

There was also record half-year production at the mining giant’s Queensland coal business because of productivity improvements. A total of 68 million tonnes of the fuel was produced in the December quarter, lifting metallurgical coal production 22% for the second half of 2013 to a record 22 million tonnes.

Copper production also increased 6% from a year ago to 440,000 tonnes, in line with expectations. However petroleum production —the second-biggest revenue earner last year after iron ore— dropped 4%.

BHP said six of its major projects began production in the past six months, and only three of the remaining 10 are less than 50% complete.

Bumpy road ahead

Despite logging record output for its key commodities, BHP’s operational report also underscores the drying up of the miner’s investment pipeline, because of work ending on projects approved when commodity prices were favourable.

BHP, which relies on iron ore for more than half its earnings, has already scaled back its steelmaking material projects. A new US$20 billion harbour at Port Hedland, the world's largest iron-ore export port, was the early victim of this move.

On top of that, analysts say any capital return for the Melbourne-based miner may not come before the 2015 financial year, starting in July.

The key determinant, they agree, will be commodity prices and currencies.

BHP Billiton shares closed the day in Australia down nearly 1%, or $0.32 to $37.63.