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BHP’s Iron Ore Volumes Remain Strong, Outlook Looks Positive

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Iron ore volumes

Iron ore volumes are key to BHP Billiton’s (BHP) (BBL) Iron Ore segment. With oversupply and weaker demand, big iron ore companies strategize to increase their volumes to reduce the pressure on revenue, cash flow, and, ultimately, the bottom line. In this part of our series, we’ll look at BHP’s outlook for iron ore volumes.

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Flat iron ore production growth

BHP Billiton’s iron ore production for fiscal 1H17, which ended December 31, 2016, was 117.6 million tons.

  • WAIO (Western Australia Iron Ore), BHP’s main iron ore asset, produced 60.0 million tons in fiscal 2Q17, a growth of 9% YoY (year-over-year). The ramp-up of additional capacity at Jimblebar boosted volumes.
  • Due to the improved track reliability and lower scheduled maintenance at Yandi, production rose 4.0% sequentially in fiscal 2Q17.
  • The company has started its rail renewal and maintenance program to support the supply chain’s long-term reliability. It is progressing ahead of schedule and expected to be completed in the June 2017 quarter.
  • As expected, iron ore production in Samarco, Brazil, has remained suspended following the dam collapse in November 2015.

Guidance

BHP maintained its guidance of 228.0 million–237.0 million tons on a BHP share basis and 265 million–275 million tons on a 100% basis for fiscal 2017. The company expects volumes to be weighed more towards the last three quarters of the fiscal year, as new primary crusher and additional conveyor capacity was finished in the December 2016 quarter.

Let’s look at Rio Tinto (RIO), which announced its production results for the quarter ended December 31, 2016, on January 16, 2017. It maintained its iron ore production guidance for 2017 of 330 million–340 million tons. Vale (VALE), on the other hand, lowered its 2017 production outlook by 20.0 million tons. Cliffs Natural Resources (CLF) will release its 4Q16 results on February 9, 2017.

Cliffs Natural Resources forms 3.6% of the SPDR S&P Metals and Mining ETF (XME). Vale forms 1.8% of the iShares MSCI Brazil Capped ETF (EWZ).

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