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Production bonanza

The mining production boom is well underway even as the media laments the end of the capex boom.

This month, most of Australia’s mining sector companies have been reporting quarterly and annual production figures that have been helped by benign weather patterns and improving productivity (asset-sweating, if you prefer the vernacular).

Rio Tinto’s gigantic iron ore operations in the Pilbara increased 10% to 139.5mt in the half-year to June 30. The rail work for the expansion to an annualised production capacity of 360mtpa is already complete and the company’s run-rate popped through 240mtpa in May.

BHP’s iron ore operations shunted out 204mt, up 20% on the prior year, beating its initial full year guidance figure by over 8%. Total iron ore production will nudge up by a further 11% in the 2015 financial year to 245mt (on a 100% basis) and the company says there are low-cost options to push that towards 270mtpa.

The general view is for all this new production in seaborne iron ore, combined with a slowing rate of steel production in China, to create an over-supply of the key steel-making commodity. Economics 101 says that when supply exceeds demand, price goes down but it’s not always that simple.

At 843 million tonnes per annum, Chinese steel production is once again at an all-time annualised production record.

The short term angst concerning the iron ore price does not detract from the underlying trend of urbanisation in China which continues to require vast amounts of steel (and other materials) to create the necessary housing and infrastructure.

Just last week, official figures showed China’s GDP growth rate had ticked back up to the targeted 7.5%pa in the second quarter. That should placate at least a few of the worry-warts out there.

BHP has other cards in the deck and its petroleum business is another key pillar that continues to look promising. North American liquids production is the main reason why total oil and gas production reached 246 million barrels of oil equivalent. The company is guiding for a 5% increase in FY15 production to around 255 MMboe.

Copper production at BHP also increased to just over 1.7mt following improvements to the Escondida operations in Chile.

RIO’s first half copper production increased 10% to 323,000 tonnes indicating the relative size to BHP’s assets.

Even BHP’s coal assets provided a bright note to the pervading gloom in that industry over the last few years. Production of metallurgical coal (coking coal) bounced 20% in 2014 to a record 45mt and will go up to 47mt in FY15 as the new Caval Ridge mine ramps up to completion.

Newcrest Mining would prefer the market to focus on its recovering operational data with gold production in the 2014 financial year lifting 14% to almost 2.4m ounces and copper hitting 86,118 tonnes, up 7%.

The stock will be clouded by the class action underway through Slater and Gordon relating to the investor relations debacle last year

Newcrest said it will report an asset impairment of A$1.5bn to A$2.5bn when it releases its full year financial results in August.

Another copper producer, OZ Minerals also got excited enough to raise guidance for FY15 to 85-90,000 tonnes for the calendar year. So far this year, the company has dug up 64,528oz of gold to go with the 40,363 tonnes of copper.

A similar story came out of Sandfire Resources with copper production hitting 67,690 tonnes for the 2014 financial year, accompanied by 33,893oz of gold. SFR said FY15 production guidance is 65-70,000 tonnes of copper and 35-40,000oz of gold.

The oil and gas companies delivered pretty much what the market had been expecting although (the bank of) Woodside Petroleum managed to push up its full year production guidance. WPL’s shareholder vote on the buyback is meeting with criticism over the way valuable franking credits are being utilised, so the outcome on 1 August will be closely watched.

Fortescue Mining achieved its cherished annualised 155mtpa run-rate in the June quarter and continues to talk about potential expansion beyond that. Costs are also filtering down but FMG’s lower quality ores are facing higher discounts to the standard 62% iron ore product. Despite this, FMG still looks like a good business with mounting operating earnings knocking off great chunks of its debt.

The share market has been mostly ambivalent about the materials and energy sector so far this year but if the production numbers are a yardstick, the financial numbers won’t be too dusty come August reporting season.

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