REG - BHP Group Limited - Quarterly Activities Report
18/01/2024 07:00
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RNS Number : 0770A BHP Group Limited 18 January 2024
18 January 2024
Operational review for the half year ended 31 December 2023
Strong H1 in copper, iron ore and energy coal. Challenging half in
metallurgical coal.
Tragically, a team member from BEP Engineering & Maintenance, a
contracting partner to BMA, was fatally injured in an incident at BMA's Saraji
mine earlier this week. Our deepest sympathies are with their family, friends
and colleagues at this difficult time. We are committed to learning from this
tragedy and investigations into the incident are underway.
Operationally, BHP has had a solid first half. WA Iron Ore production was up
5% quarter-on-quarter, while first half copper production rose 7% reflecting a
record half at Spence and ongoing strong performance and additional tonnes at
Copper South Australia. NSW Energy Coal had its best first half in five years,
while BMA had a tough six months following significant planned maintenance and
low starting inventories. At Nickel West, we are evaluating options to
mitigate the impacts of the sharp fall in nickel prices.
We progressed our growth agenda during the quarter with ongoing construction
of the Jansen mine in Canada and the sanction of Jansen Stage 2, which doubles
our planned potash production capacity. In South Australia, we successfully
integrated our Copper SA business and significant exploration drilling beneath
Olympic Dam has identified attractive copper mineralisation above 1% grade
along a 2 km strike, with areas above 2%.
Mike Henry
BHP Chief Executive Officer
Summary
Operational performance Portfolio
Production guidance unchanged, except at BMA Enhancing the quality of our portfolio
FY24 production guidance ranges remain unchanged for all assets, with the We are investing in growth with the approval of US$4.9 bn in Jansen Stage 2
exception of BMA which has been lowered to between 23 and 25 Mt (46 - 50 Mt at (https://www.bhp.com/news/media-centre/releases/2023/10/bhp-approves-investment-in-stage-two-of-jansen-potash-project)
100%) excl. Blackwater and Daunia from the expected sale completion date of 2 . We continued our strategic focus on higher quality metallurgical coal with
April 2024. the planned divestment of BMA's Blackwater and Daunia mines
(https://www.bhp.com/news/media-centre/releases/2023/10/bhp-announces-divestment-of-blackwater-and-daunia)
Copper production increased(1) 7%, including a record quarter at Carrapateena, for cash consideration of up to US$4.1 bn (100% basis). We have undertaken ~62
and energy coal production increased 36%, with its FY24 production now km of exploratory drilling beneath Olympic Dam (OD Deeps), which has shown
expected to be in the upper end of the guidance range. extensive mineralisation continuity, with attractive copper grades of above 1%
along more than 2 km in strike and more than 1 km in depth. Results are
included in Appendix 3.
Financial performance Leadership
Unit cost guidance Executive Leadership Team update
WAIO, Escondida and Spence are expected to be within their respective unit In December, we announced a number of changes
cost guidance ranges at FY24, with BMA unit cost guidance for FY24 increasing (https://www.bhp.com/news/media-centre/releases/2023/12/executive-leadership-team-update)
to between US$110/t and US$116/t as a result of the lowered production to our Executive Leadership Team, effective 1 March 2024, including that
guidance. Catherine Raw will join BHP
(https://www.bhp.com/news/media-centre/releases/2023/12/executive-leadership-team-update-cdo)
from SSE plc as Chief Development Officer effective 29 April 2024.
Production Quarter performance YTD performance FY24 production guidance
Q2 FY24 v Q1 FY24 v Q2 FY23 HY24 v HY23 Previous Current
Copper (kt) 437.4 (4%) 3% 894.4 7% 1,720 - 1,910 1,720 - 1,910
Escondida (kt) 254.6 (7%) (1%) 527.9 3% 1,080 - 1,180 1,080 - 1,180 Unchanged
Pampa Norte (kt) 59.8 (24%) (22%) 138.1 (6%) 210 - 250(i) 210 - 250(i) Unchanged
Copper South Australia (kt) 82.0 14% 51% 153.7 48% 310 - 340 310 - 340 Unchanged
Antamina (kt) 39.2 21% 11% 71.7 (1%) 120 - 140 120 - 140 Unchanged
Carajás (kt) 1.8 50% 3.0 - - -
Iron ore (Mt) 65.8 4% (2%) 129.0 (2%) 254 - 264.5 254 - 264.5
WAIO (Mt) 64.5 4% (2%) 126.5 (3%) 250 - 260 250 - 260 Unchanged
WAIO (100% basis) (Mt) 72.7 5% (2%) 142.1 (3%) 282 - 294 282 - 294 Unchanged
Samarco (Mt) 1.3 6% 19% 2.5 13% 4 - 4.5 4 - 4.5 Unchanged
Metallurgical coal - BMA (Mt) 5.7 2% (18%) 11.3 (17%) 28 - 31 23 - 25 Lowered
BMA (100% basis) (Mt) 11.4 2% (18%) 22.6 (17%) 56 - 62 46 - 50 Lowered
Energy coal - NSWEC (Mt) 3.9 7% 35% 7.5 36% 13 - 15 13 - 15 Upper end
Nickel - Nickel West (kt) 19.6 (3%) 11% 39.8 4% 77 - 87 77 - 87 Unchanged
i Production guidance for FY24 is for Spence only and excludes
Cerro Colorado which produced 11 kt before ceasing production on 9 November
2023.
1
BHP | Operational review for the half year ended 31 December 2023
Summary of disclosures
BHP expects its financial results for the half year ended 31 December 2023
(HY24) to reflect certain items summarised in the table below. The table does
not provide a comprehensive list of all items impacting the period. The
financial statements are the subject of ongoing work that will not be
finalised until the release of the financial results on 20 February 2024.
Accordingly, the information in the table below contains preliminary
information that is subject to update and finalisation.
Description H1 impact(i) Classification(ii)
(US$M)
Unit costs (at guidance FX)(iii)
At HY24, unit costs at WAIO and Escondida are expected to be within their - Operating costs
respective guidance ranges, while Spence is expected to be in the lower half
of its guidance range. Unit costs at BMA are expected to be substantially
higher than the revised guidance range due to the lower volumes
For FY24, unit cost guidance for WAIO, Escondida and Spence remains unchanged. - Operating costs
Unit cost guidance for BMA has been increased to between US$110/t and US$116/t
as a result of the decrease in expected production, and excludes Blackwater
and Daunia from the expected date of completion of the divestment
Note: weaker Australian dollar and Chilean peso than guidance rates were Refer footnote(iii)
realised in the period
Income statement
The Group's adjusted effective tax rate for HY24 is expected to be in the - Taxation expense
lower half of the guidance range of 30 - 35%
Cash flow statement
Working capital movements including net price impacts, closure and ~1,500 - 1,700 Up Operating cash flow
rehabilitation payments and other movements
Cash tax paid ~3,500 - 3,600 Down Operating cash flow
Dividends received from equity-accounted investments ~200 Up Operating cash flow
Dividends paid to non-controlling interests ~600 Down Financing cash flow
Payment of the H2 FY23 dividend ~4,000 Down Financing cash flow
Balance sheet
The Group's net debt balance at 31 December 2023 is expected to be between - Net debt
$12.5 and $13.0 bn
Exceptional items
Financial impact on BHP Brasil of the Samarco dam failure Refer footnote(iv) Exceptional item
The financial impact is expected to primarily relate to amortisation of
discounting on the provision and the impact of foreign exchange
i Numbers are not tax effected, unless otherwise noted.
ii There will be a corresponding balance sheet, cash flow and/or
income statement impact as relevant, unless otherwise noted.
iii Average exchange rates for HY24 of AUD/USD 0.65 (guidance rate
AUD/USD 0.67) and USD/CLP 874 (guidance rate USD/CLP 810).
iv Financial impact is the subject of ongoing work and is not yet
finalised. See Iron ore (#_Iron_ore) section for further information on
Samarco operations.
Further information in Appendix 1
Detailed production and sales information for all operations in Appendix 2
Detailed drilling results for Olympic Dam Deeps Appendix 3
2
BHP | Operational review for the half year ended 31 December 2023
Segment and asset performance | FY24 YTD v FY23 YTD
Copper
Production Total copper production increased by 7% to 894 kt. Copper guidance for FY24
remains unchanged at between 1,720 and 1,910 kt.
894 kt Up 7%
Escondida 528 kt Up 3% (100% basis)
Increased production was primarily due to higher concentrator feed grade of
HY23 834 kt 0.81%, compared to 0.79% in HY23 and higher concentrator throughput.
Concentrator feed grade is expected to be between 0.85% and 0.90% for FY24.
FY24e 1,720 - 1,910 kt Production guidance for FY24 remains unchanged at between 1,080 and 1,180 kt.
Pampa Norte 138 kt Down 6%
Average realised price Production at Spence increased 4% to a half year record of 127 kt, driven by
improved concentrator throughput. Record concentrate production was partially
US$3.66/lb Down 5% offset by lower cathode production, in line with an expected decline in
stacked feed grade. The concentrator plant modifications which commenced in
HY23 US$3.49/lb August 2022 are expected to be completed in FY24.
We approved an incremental US$570 m in sustaining capital to progress
remediation of previously identified anomalies in the Spence Tailings Storage
Facility (TSF). These plans have been developed with the Engineer of Record,
Independent Tailings Review Board and expert consultants. This is the first
stage to remediate the TSF. Production guidance for Spence for FY24 remains
unchanged at between 210 and 250 kt and remains subject to successful
remediation of the TSF anomalies.
Cerro Colorado entered temporary care and maintenance in December 2023, after
producing 11 kt for the period.
Copper South Australia 154 kt Up 48%
Production increased by 51 kt due to the additional volumes from Prominent
Hill and Carrapateena. Successful integration of the Copper South Australia
asset has resulted in strong underlying operational performance, including
record quarterly copper production at Carrapateena in Q2. Strong smelter
performance at Olympic Dam was supported by increased transfers of concentrate
from Prominent Hill for processing to higher margin cathode. Olympic Dam also
delivered record half year gold production and sales.
Production guidance for FY24 remains unchanged at between 310 and 340 kt.
Crusher 2 at Carrapateena remains on track to come online in Q3 FY24 and to
ramp up in Q4 FY24. We have also had continued success with exploration
drilling across the asset. Drilling to date beneath the known Olympic Dam ore
body (OD Deeps) confirms attractive mineralisation continuity at above 1%
copper grade (refer to Appendix 3 (#_Appendix_3) ). At Oak Dam, there are 12
active drill rigs (up from 10) and the accommodation camp is nearing
completion.
Other copper
At Antamina, copper production decreased by 1% to 72 kt, while zinc production
was 10% higher at 69 kt, both in line with planned concentrator feed grades.
Production guidance at Antamina remains unchanged for FY24 with expected
copper production of between 120 to 140 kt and zinc production of between 85
and 105 kt.
Carajás produced 3.0 kt of copper and 2.1 troy koz of gold. Operations were
stopped in August due to a geotechnical event, and gradually restarted in
October. In Q3 FY24 operations will continue to ramp back up with shipments
also expected to resume.
3
BHP | Operational review for the half year ended 31 December 2023
Iron ore
Production Total iron ore production decreased by 2% to 129 Mt. Guidance for FY24 remains
unchanged at between 254 and 264.5 Mt.
129 Mt Down 2%
WAIO 126 Mt Down 3% | 142 Mt (100% basis)
Lower production due to the continued tie-in activity for the Rail Technology
HY23 132 Mt Programme (RTP1), and the impacts of the ongoing ramp up of the Central
Pilbara hub (South Flank and Mining Area C).
FY24e 254 - 264.5 Mt
South Flank is on track to ramp up to full production capacity of 80 Mtpa
(100% basis) by the end of FY24. The planned tie-in of the Port
Debottlenecking Project (PDP1) is on track to be completed in CY24, following
Average realised price commissioning on 7 December 2023.
US$103.70/wmt Up 21% Production guidance for FY24 remains unchanged at between 250 and 260 Mt (282
and 294 Mt on a 100% basis).
HY23 US$85.46/wmt
Samarco 2.5 Mt Up 13% | 5.1 Mt (100% basis)
Production increased as a result of higher concentrator throughput. Production
guidance for FY24 remains unchanged at between 4 and 4.5 Mt.
In December 2023, BHP Brasil approved up to US$925 m in further financial
support for the Renova Foundation. The funding is for CY24 and will be
deducted from the Group's provision for the Samarco dam failure.
Coal
Metallurgical coal
Production BMA 11.3 Mt Down 17% | 22.6 Mt (100% basis)
On 15 January, a team member from BEP Engineering & Maintenance, a
11.3 Mt Down 17% contracting partner to BMA, was fatally injured in a vehicle incident at
Saraji mine. Investigations are underway and we are working closely with the
HY23 13.6 Mt relevant authorities. Operations at Saraji were suspended and are expected to
progressively restart over the coming days.
FY24e 23 - 25 Mt
In the period, lower production was a result of a significant increase in
planned maintenance across the asset, the extended longwall move, and
geotechnical faulting which impacted underground operations at Broadmeadow
Average realised price until early November. Production was also impacted by an increase in prime
stripping to improve value chain stability following depleted inventory
US$266.43/t Down 1% positions arising from extended weather impacts and labour constraints over
recent years.
HY23 US$268.73/t
Full year production guidance is now expected to be between 23 and 25 Mt (46
and 50 Mt on a 100% basis). This guidance excludes Blackwater and Daunia from
the date of completion of the divestment which is expected to occur on 2 April
2024. This has been lowered from 28 - 31 Mt (56 and 62 Mt on a 100% basis),
inclusive of Blackwater and Daunia.
Energy coal
Production NSWEC 7.5 Mt Up 36%
Increased production as a result of strong operating performance as eased
7.5 Mt Up 36% labour constraints and improved weather conditions enabled an uplift in truck
productivity, with record annualised truck hours for the half. Domestic sales
HY23 5.5 Mt under the NSW Government Coal Market Price Emergency (Directions for Coal
Mines) Notice commenced in Q4 FY23, which resulted in a lower proportion of
FY24e 13 - 15 Mt washed coal and contributed to the higher volumes.
Production guidance for FY24 is expected to be at the upper end of the range
of between 13 and 15 Mt.
Average realised price
We submitted a modification request to the NSW Government to extend mining
US$123.29/t Up 65% approval to 30 June 2030 in support of the 2030 closure plan. The modification
submission went on public exhibition for four weeks in November 2023. The
HY23 US$354.30/t approval process will continue through FY24.
4
BHP | Operational review for the half year ended 31 December 2023
Group & Unallocated
Nickel
Production Nickel West 40 kt Up 4%
Production increased due to improved performance, and a shorter shutdown
40 kt Up 4% period at the Kalgoorlie Smelter offsetting downtime at the Kwinana Refinery.
HY23 38 kt Production guidance remains unchanged at between 77 and 87 kt for FY24.
FY24e 77 - 87 kt The nickel industry is undergoing a number of structural changes and is at a
cyclical low in realised pricing. Nickel West is not immune to these
challenges. Operations are being actively optimised, and options are being
evaluated to mitigate the impacts of the sharp fall in nickel prices. Given
Average realised price the market conditions, a carrying value assessment of the Group's nickel
assets is ongoing, and a further update will be provided with the release of
US$18,602/t Down 24% the financial results on 20 February 2024.
HY23 US$24,362/t
Quarterly performance | Q2 FY24 v Q1 FY24
Copper Iron ore
437 kt Down 4% Lower concentrator grade at Escondida and concentrator throughput at Spence, 66 Mt Up 4% Increased production at WAIO as a result of the Q1 impacts of the RTP1
partially offset by higher volumes at Copper South Australia following planned
integration, planned equipment maintenance and Central Pilbara hub ramp up.
Q1 FY24 457 kt maintenance in Q1. Q1 FY24 63 Mt
Metallurgical coal Energy coal
5.7 Mt Up 2% Production increased due to the lower planned wash plant maintenance, the ramp 3.9 Mt Up 7% Higher production as a result of strong performance across the value chain,
up of the longwall at Broadmeadow, and improved strip ratio. This was
largely driven by strong Q1 stripping performance, and the opportune draw down
Q1 FY24 5.6 Mt partially offset by significantly increased rainfall. Q1 FY24 3.6 Mt of raw coal.
Nickel
20 kt Down 3% Lower volumes due to downtime at the Kwinana Refinery.
Q1 FY24 20 kt
The following footnotes apply to this Operational Review:
1 Prior year comparatives do not include production volumes for
the operations acquired from OZL on 2 May 2023.
5
BHP | Operational review for the half year ended 31 December 2023
Appendix 1
Average realised prices(1)
Q2 FY24 HY24 Q2 FY24 v HY24 v HY24 v
Q1 FY24
H2 FY23 HY23
Copper (US$/lb)(2,3,4) 3.68 3.66 1% (4%) 5%
Iron ore (US$/wmt, FOB)(5) 109.47 103.70 12% 4% 21%
Metallurgical coal (US$/t)(6) 293.21 266.43 24% (2%) (1%)
Hard coking coal (US$/t)(7) 305.69 274.99 26% 0% 2%
Weak coking coal (US$/t)(7) 214.26 204.55 12% (18%) (19%)
Thermal coal (US$/t)(6,8) 121.35 123.29 (3%) (22%) (65%)
Nickel metal (US$/t) 16,812 18,602 (17%) (21%) (24%)
1 Based on provisional, unaudited estimates. Prices exclude sales
from equity accounted investments, third party product and internal sales, and
represent the weighted average of various sales terms (for example: FOB, CIF
and CFR), unless otherwise noted. Includes the impact of provisional pricing
and finalisation adjustments.
2 At 31 December 2023, the Group had 356 kt of outstanding copper
sales that were revalued at a weighted average price of US$3.87/lb. The final
price of these sales will be determined over the remainder of FY24. In
addition, 342 kt of copper sales from FY23 were subject to a finalisation
adjustment in the current period. The displayed prices include the impact of
these provisional pricing and finalisation adjustments.
3 The large majority of copper cathodes sales were linked to index
price for quotation periods one month after month of shipment, and three to
four months after month of shipment for copper concentrates sales with price
differentials applied for location and treatment costs.
4 Does not include sales from assets acquired through the purchase
of OZL.
5 The large majority of iron ore shipments were linked to index
pricing for the month of shipment, with price differentials predominantly a
reflection of market fundamentals and product quality. Iron ore sales for HY24
and Q2 FY24 were based on an average moisture rate of 6.7% (HY23: 6.8%).
6 The large majority of metallurgical coal and energy coal exports
were linked to index pricing for the month of scheduled shipment or priced on
the spot market at fixed or index-linked prices, with price differentials
reflecting product quality.
7 Hard coking coal (HCC) refers generally to those metallurgical
coals with a Coke Strength after Reaction (CSR) of 35 and above, which
includes coals across the spectrum from Premium Coking to Semi Hard Coking
coals, while weak coking coal (WCC) refers generally to those metallurgical
coals with a CSR below 35.
8 Export sales only. Includes thermal coal sales from
metallurgical coal mines.
Current year unit cost guidance
Previous Current
FY24 guidance(1) FY24 guidance(1)
Escondida unit cost (US$/lb)(2) 1.40 - 1.70 1.40 - 1.70 Unchanged
Spence unit cost (US$/lb) 2.00 - 2.30 2.00 - 2.30 Unchanged
WAIO unit cost (US$/t) 17.40 - 18.90 17.40 - 18.90 Unchanged
BMA unit cost (US$/t) 95 - 105 110 - 116 Increased
1 FY24 unit cost guidance is based on exchange rates of AUD/USD
0.67 and USD/CLP 810.
2 Escondida unit costs for FY24 onwards exclude revenue-based
government royalties.
Medium term guidance
Production Unit cost
guidance guidance(1)
Escondida(2) 1,200 - 1,300 kt US$1.30 - $1.60/lb(3)
Spence(4) ~250 kt
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