BHP Group PLC (LON:BHP) shares fell on Wednesday as the miner cut its forecast for 2019 iron ore output to reflect the impact of a tropical cyclone that hit western Australia last month, mirroring rival Rio Tinto PLC (LON:RIO) which did the same on Tuesday.
In a third-quarter production update, the FTSE 100-listed firm, which put its fiscal 2019 iron ore production under review earlier this month following the cyclone, lowered its forecast to 265mln-270mln tonnes, down from the 273mln-283mln tonnes expected previously.
READ: Rio Tinto cuts 2019 production estimates after posting 14% drop in quarterly iron ore shipments
BHP said iron ore output for the three months to end-March fell by 5% to 64mln tonnes, down from 67mln tonnes a year earlier.
The world’s biggest miner also increased its full-year production costs to less than $15 a tonne, up from less than $14 a tonne previously, due to lower volumes and increased remediation costs.
However, miners are benefiting from a surge in iron ore prices to near five-year highs on supply concerns following cyclone Veronica and after a fatal dam collapse in Brazil that has cut operations at the world’s biggest iron ore miner Vale SA.
Since selling its onshore US oil business last year, BHP is now focused on just four commodities - iron ore, copper, coal and offshore oil and gas.
The miner posted an 8% year-on-year drop in copper production in the third quarter, mainly due to lower output at the world’s biggest copper mine, Escondida in Chile. However, it maintained its annual production guidance for copper at 1.65mln to 1.74mln tonnes.
Strong operational performance despite weather impacts
BHP’s chief executive officer, Andrew Mackenzie, said: "During the March 2019 quarter, we had a strong operational performance despite weather impacts across Australia and Chile.
“We approved Atlantis Phase 3 and now have five major projects under development. Those projects, our work on transformation, technology and culture, and our successful petroleum and copper exploration and appraisal programs will grow value and returns for years to come.”
In a note to clients, analysts at RBC Capital commented: “Another disappointing operational quarter for BHP, albeit somewhat already in the price with the prior warning from the cyclones.
“Iron ore production came in 5mt lower than our expectation and was in line with shipments (we had revised shipments down by 3mt in the quarter and 3mt next quarter).”
They added: “This suggests the overall quarter was likely running behind even before the cyclone. This now means BHP will need to produce a record 63 mt to meet our 238mt expectation for the year (new guidance 235mt- 239mt).”
RBC reiterated a ‘sector perform’ rating and 1,625p target price on BHP shares, which in afternoon trading were down 2.6% at 1,860.80p.
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