Asia demand recovery

3Q23 PRODUCTION

Need To Know

• FY23 production guidance (mostly) unchanged
• OZL acquisition to turn SA assets into internationally competitive copper region
• China and India appetite for iron ore grows

Full year production guidance for FY23 has been tweaked but is mostly as expected. Iron ore continues to benefit from China’s reinvigorated economy and the OZ Minerals acquisition, completed just after the quarter ended is another step in the group’s ‘future facing’ metals strategy.

Iron Ore. Record nine month production in the Pilbara has FY23 production guidance unchanged at 278-290mt (100% basis). A fatality in February did halt operations temporarily. Full year unit cost guidance is unchanged, but WAIO will be at the top end.

Copper. Production increased 12% to 1,240kt and while FY23 guidance is unchanged (1,635-1,825kt), the mix is for softer output at Escondida with better figures from Pampa Norte and Olympic Dam. 

Investment View

China’s economic rebound and India’s steelmaking growth underpin the iron ore behemoth inside BHP. But the more cerebral angle to owning BHP is for the global decarbonisation theme that needs substantially more copper and nickel. In a widely quoted research report from Goldman Sachs, the bank expects copper prices to reach US$15,000/t (currently ~US$9,000/t) by 2025 as regulatory approval for new mines falls to its lowest in a decade. 

BHP’s position has three points of attack in this regard – 

1. the OZ Minerals acquisition will help to create ‘an internationally competitive copper business in South Australia’ alongside BHP’s massive but underperformed Olympic Dam and the exciting Oak Dam project to which 10 drilling rigs are en route 
2. BHP’s stake in Resolution Copper in Arizona is now joined by the adjacent Ocelot project where encouraging drilling results from 12 holes have identified significant intercepts with commercial quantities of copper. While Resolution has been mired in environmental opposition, the tide is turning in favour given the realisation that copper is central to the energy transition, and 
3. BHP’s enormous Escondida mine in Chile (BHP 57.5%), the Pampa Norte project, also in Chile and the Antamina project in Peru. These are all world class tier one projects and are the backbone of BHP’s copper strategy.

BHP is refamiliarising itself with the nickel industry as well and has jettisoned the problematic oil and gas business to WDS. To round out the ‘future facing’ portfolio, the Jansen Potash project in Canada (Stage 1) will see initial production at the end of CY26.

The rapacious Queensland Government is doing its best to show BHP the door on its coal mining operations with egregious royalty rates. BHP’s alliance, BMA, is no longer making new investments in the state. Likewise, the NSW Government’s domestic coal directions are only making it easier for BHP to exit its Mt Arthur mine.