BHP Group BHP recently released production details for the year ended Jun 30, 2020 and provided guidance for fiscal 2021. Iron ore production achieved record level in fiscal 2020. While the company met its full-year production guidance for iron ore, metallurgical coal and operated copper and energy coal assets despite the coronavirus pandemic, petroleum production fell short of expectations.
Production Highlights
For the year ended Jun 30, 2020, the company’s total iron ore production improved 4% year over year to a record 248 Mt. Record production was achieved at Western Australia Iron Ore (WAIO) reflecting stellar productions at Jimblebar and Yandi. Weather impacts from Tropical Cyclone Blake and Damien were offset by strong performance across the supply chain with significant improvements in productivity courtesy of the company’s targeted maintenance programs over the past few years.
Total petroleum production was 109 MMboe (million barrels of oil equivalent) for the period under review, down 10% year over year. Production failed to match the guidance on account of lower gas demand due to the impact of COVID-19 and a decrease in tax barrels at Trinidad and Tobago on account of low commodity prices in the June 2020 quarter. Total copper production improved 2% year over year to 1,724 kt in fiscal 2020.
Metallurgical coal production was down 3% to 41 Mt while energy coal production was 23 Mt, down 16% year over year. Nickel production was down 8% year over year to 80 kt.
Average realized prices for iron ore and nickel in fiscal 2020 increased 16% and 11%, respectively while average realized prices for copper fell 5%. Average realized prices for metallurgical coal and thermal coal both declined 27%. Average realized prices for oil (crude and condensate), Natural gas and LNG declined 26%, 11% and 23%, respectively.
Fiscal 2021 Production Guidance
In fiscal 2021, BHP Group expects to produce between 244 and 253 Mt of iron ore compared with 248 Mt produced in fiscal 2020. The company’s petroleum production guidance for fiscal 2021 is expected to be 95-102 MMboe. This 6-13% drop from production in fiscal 2020 reflects expected lower gas demand in Eastern Australia and Trinidad and Tobago, and delay of several small and medium sized projects with short lifecycles and natural field decline across the portfolio
BHP Group anticipates copper production between 1,480 kt and 1,645 kt in fiscal 2021, reflecting a decline of 5-14% from production in fiscal 2020. Production guidance of Metallurgical coal for fiscal 2020 is at 40-44 Mt and for energy coal at 22-24 Mt. Nickel production for fiscal 2021 is now expected between 85 kt and 95 kt, which reflects an improvement of 6-19% from fiscal 2020 production levels.
However, the resurgence of COVID-19 outbreak poses a threat to the company’s outlook for its key commodities
Six Major Projects on Track
As of Jun 30, 2020, BHP had six major projects under development in petroleum, copper, iron ore and potash. These projects have a combined budget of $11.4 billion over the life of the projects. Notably, during the fiscal year, the BHP Board approved the Ruby oil and gas project in Trinidad and Tobago.
Although the major economies have begun to re-emerge from lockdowns, resurgence of cases and re-implementation of shutdown measures in some regions raise concerns. Meanwhile, industrial activity in China is showing signs of early recovery, aided by supportive credit and fiscal policy. Backed by its strong cash flow, low debt levels and its cost-effective operations, BHP is poised well to sail through these troubled times.
Price Performance
Over the last year, BHP Group’s shares fallen 8.3%, against the industry’s growth of 2.2%.
Zacks Rank & Other Stocks to Consider
BHP Group currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Some other top-ranked stocks in the basic materials space include DAQO New Energy Corp. DQ, Clearwater Paper Corporation CLW and The Scotts MiracleGro Company SMG. All of these stocks carry a Zacks Rank of 1, at present.
DAQO New Energy has an estimated earnings growth rate of 207% for the ongoing year. The company’s shares have rallied 160% in the past year.
Clearwater Paper has a projected earnings growth rate of 1043% for 2020. The company’s shares have appreciated 109% in the past year.
The Scotts MiracleGro has an expected earnings growth rate of 30% for 2020. The stock has gained 40% in a year’s time.
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