Increasing Copper Volumes Key Part of BHP’s Fiscal 2017 Guidance



Copper volumes

Companies that produce copper are taking steps to increase production in order to lower costs. These companies include BHP Billiton (BHP) (BBL), Freeport-McMoRan (FCX), Teck Resources (TCK), Southern Copper (SCCO), and Newmont Mining (NEM).

Lowering costs is vital in price environments in which copper prices are falling, and copper volumes are key for these companies’ copper segment revenues.

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Copper volumes recover

BHP’s total copper production for fiscal 2016 was 8% lower YoY (year-over-year) at 1.6 million tons. This was expected, as the grade declines at Escondida had kicked in, according to BHP’s management during its fiscal 2015 earnings conference call.

However, production for the June quarter increased 2% from the March 2016 quarter as a result of higher concentrator throughput due to improved water availability. Here are other contributing factors for production in fiscal 2016:

  • Escondida’s copper production for fiscal 2016 declined by 20% to 979,000 tons as record metals mined and improvements in truck utilization were offset by a 28% grade decline, as expected.
  • Escondida beat the cost guidance for fiscal 2016 due to better output from leaching operations. The cost guidance for Escondida currently stands at $1.21 per pound.
  • Production at Pampa Norte increased by 1% to 251,000 tons due to record ore milled and higher grades at Spence.
  • Copper production at Olympic Dam rose by 63% YoY to a record 203,000 tons. This mainly reflects the improved smelter and mill utilization.

Copper guidance

BHP Billiton (BHP) achieved its full-year guidance for copper production in fiscal 2016. For fiscal 2017, management is guiding for the following:

  • Production guidance for Escondida for fiscal 2017 is 1.7 million tons as Escondida Water Supply project is commissioned in the second half of 2016 and enables the utilization of three concentrators.
  • The copper production at Pampa Norte is also expected to increase in fiscal 2017 as the Spence Recovery Optimization project is completed. This would enable the full utilization of a tankhouse capable of 200,000 tons per year.
  • The copper production at Olympic Dam, on the other hand, is expected to remain almost unchanged from fiscal 2016 in fiscal 2017.

Investors looking for diversified exposure to the materials sector can consider the iShares US Basic Materials ETF (IYM). Almost 12% of IYM’s holdings are invested in metals and mining companies.

Continue to the next part of this series for a look at BHP Billiton’s petroleum production in fiscal 2016.


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