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Assessing BHP’s Coal Volumes Target in 1H16

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Coal business

BHP Billiton’s (BHP) (BBL) coal business is the world’s largest supplier of seaborne metallurgical coal. Along with iron ore and manganese, metallurgical coal is a key input in steel production.

A sustained rise or fall in coal shipments is a significant indicator that affects the stock value of coal producers (KOL) such as BHP Billiton, Peabody Energy (BTU), Alliance Resource Partners (ARLP), Arch Coal (ACI), and Cloud Peak Energy (CLD).

BHP makes up 5.2% of the iShares Commodities Select Strategy ETF (COMT).

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Met coal volumes

BHP’s metallurgical coal production fell by 3% YoY (year-over-year) during the first half of fiscal 2016. The company’s metallurgical coal production for the half-year came in at 20.9 million tons. Here are a few contributing factors:

  • While increased wash-plant utilization and yield led to record production at the Daunia and South Walter Creek mines at Queensland Coal, this was offset by planned longwall moves at the Broadmeadow and Crinum mines.
  • Energy coal production also fell by 3% YoY in fiscal 1H16, to 19.4 million tons.
  • Lower production reflected continued drought conditions at Cerrejón and the impact of heavy rainfall at New South Wales.

Coal production guidance unchanged

Meanwhile, BHP’s management maintained its production expectations for fiscal 2016: 40 million tons for metallurgical coal and 40 million tons for energy coal. However, the following factors should be considered:

  • At current mining rates, BHP’s management expects its Crinum mine to approach the end of its economic life by the first quarter of 2016.
  • The fall from this cessation of operations at Crinum has already been factored into BHP’s production guidance for metallurgical coal.
  • Going forward, BHP’s energy coal production should drop, since the San Juan mine, which produced 5 million tons of energy coal in fiscal 2015, no longer contributes to BHP’s energy coal volumes. This transaction is expected to be completed in the March 2016 quarter.

Continue reading to find out how BHP Billiton’s copper production fared in fiscal 1H16 and its outlook for fiscal 2016.

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