Iron ore operations
BHP Billiton (BHP) is the third-largest iron ore producer in the world. It’s ranked behind Brazil’s Vale (VALE) and Rio Tinto (RIO). BHP sells lump and fines. Lump iron is between six and 30 millimeters in size. Anything below six millimeters is considered fines. Lumps have higher iron content than fines.
Steady production growth
BHP’s total iron ore production increased by 16% in the December 2014 half-year to a record 113 million tons. Production for the December 2014 quarter was 56.4 million tons, compared to 57.1 tons for the quarter ended September 2014.
Western Australia Iron Ore (WAIO) production increased by 15% in the December 2014 half-year to a record 124 million tons (100% basis) as the ramp-up of Jimblebar continued and the company improved the availability, utilization, and rate of its integrated supply chain. WAIO also achieved record sales volumes of 126 million tons (100% basis) in the December 2014 half-year. Its strategy of increasing its percentage of direct-to-ship ore unlocked further port capacity.
Samarco production increased by 29% in the December 2014 half-year to a record 14 million tons (100% basis) as the ramp-up of the fourth pellet plant continues.
Production growth remains strong for large companies—including BHP, RIO, and VALE. This production growth, without a proportionate increase in demand, is putting downward pressure on prices. This could negatively affect pure-play, high-debt iron ore names like Cliffs Natural Resources (CLF).
It’s important to note that exchange-traded funds (or ETFs)—like the iShares MSCI Global Metals & Mining Producers ETF (PICK)—also provide exposure to the metals and mining sector. BHP and RIO form 29.5% of the fund’s total assets.