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Why BHP’s Copper Production Will Drop in Fiscal 2016

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Sep. 9 2015, Updated 10:06 a.m. ET

Copper volumes

Companies that produce copper, including BHP Billiton (BHP) (BBL), Freeport-McMoRan (FCX), Teck Resources (TCK), Southern Copper (SCCO), and Newmont Mining (NEM), are taking steps to increase production in order to lower costs. Lowering costs is vital in this price environment where copper prices are hitting multi-year lows. Copper volumes are key for these companies’ copper segment revenues. FCX forms 3% of the SPDR S&P Metals and Mining ETF (XME).

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Copper volumes flat

  • BHP’s total copper production for fiscal 2015 was flat at 1.7 million tons. While copper production at Escondida and Pampa Norte increased 11% and 7% year-over-year (or YoY), respectively, production at Olympic Dam and Antamina dropped 32% and 25% YoY, respectively.
  • At Escondida, improvement in truck utilization and higher grades offset the impact of severe wet weather, water restrictions, industrial action, and power outages throughout northern Chile.
  • Strong production at Escondida offset the impact of the mill outage at Olympic Dam.

Copper production to drop

  • BHP management expects copper production to drop 12% in fiscal 2016, to 1.5 million tons. This will be driven by a 27% grade decline at Escondida. Pampa Norte production is expected to remain at a similar level, while production at Olympic Dam is expected to increase following the full ramp-up of the mill at the end of July 2015.
  • Higher copper grades should support production at BHP’s Antamina copper mine in Peru in fiscal 2016.
  • The company is going for a three concentrator strategy at Escondida, which is expected to offset the grade decline at Escondida after fiscal 2016. This should support a strong recovery in production.

The cost to produce copper is another key variable that impacts the profitability of BHP’s copper segment. We’ll take a detailed look at this in the next part of this series.

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