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BHP Billiton: Should We Expect More Value after Fiscal 2017 Results?

PART:
1 2 3 4 5 6 7 8 9 10
Part 5
BHP Billiton: Should We Expect More Value after Fiscal 2017 Results? PART 5 OF 10

Why BHP Billiton Has a Positive Outlook for Metallurgical Coal

Coal production

In fiscal 2017, BHP Billiton’s (BHP) (BBL) metallurgical (or met) coal production fell 6.0% to 40.0 million tons, while thermal coal production rose 7.0% to 29.0 million tons. The damage caused by Cyclone Debbie caused the reduction in met coal production. On the other hand, a stronger performance at Cerrejón and a lower strip ratio helped thermal coal production.

Why BHP Billiton Has a Positive Outlook for Metallurgical Coal

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For fiscal 2018, BHP expects met coal production to rise between 44.0 million tons and 46.0 million tons. It expects thermal coal production to remain constant between 29.0 million tons and 30.0 million tons.

Reduction in unit costs

BHP’s Queensland Coal unit costs rose 8.0% to $60 per ton in fiscal 2017 due to a lower sales volume, as we saw earlier in this series. The costs are expected to fall slightly to $59 per ton in fiscal 2018. The company is forecasting higher strip ratios. That, along with planned de-bottlenecking, should lead to higher costs going forward.

The unit costs for NSW (New South Wales) Energy Coal were $41 per ton. The company expects those costs to rise to $46 per ton in fiscal 2018 as mining progresses through geological constraints, strip ratios increase, and pit design initiatives are implemented. Some of these measures could lead to lower unit costs for fiscal 2020 and onward.

Metallurgical coal commentary from BHP

BHP noted that metallurgical coal prices rose significantly in the first half of 2017 on the back of China’s supply-side reform policy and adverse weather conditions in China and Queensland. The company remains bullish on the long-term outlook for met coal prices. It believes that demand will be supported by emerging markets (EEM) such as India. A further expected concentration of China’s blast furnace capacity toward coastal locations should also support the demand for seaborne met coal.

Other coal producers (KOL), including Alliance Resource Partners (ARLP), Cloud Peak Energy (CLD), and Vale SA (VALE), could also benefit from higher coal prices.

Copper is another pillar of BHP’s four-pillar strategy. In the next part, we’ll see how BHP’s copper volumes and costs are doing.

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