Lower Escondida grades, Australia power woes hit BHP copper output

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Wednesday, October 19, 2016

Anglo-Australian commodities giant BHP Billiton reported a 6.0% year-on-year drop in copper output for its fiscal first quarter ended September 30, citing lower grades at its flagship Escondida mine in Chile and a power outage at its Olympic Dam operation in Australia.

Total copper output for the quarter was down to 354,600t from 377,300t in the same period last year, the company said in a report.

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Across its operations globally, BHP reported a 15% drop in petroleum output, steady production of iron ore, a 4% decline in energy coal, and a 1% increase in metallurgical coal.

"We have seen early signs of markets rebalancing. Fundamentals suggest both oil and gas markets will improve over the next 12 to 18 months. Iron ore and metallurgical coal prices have been stronger than expected, although we continue to expect supply to grow more quickly than demand in the near term," CEO Andrew Mackenzie said.

"Together, the combination of steadier markets, continued capital discipline, improved productivity and increased volumes in copper, iron ore and metallurgical coal should further support strong free cash flow generation this financial year," he said.

BHP maintained its copper production guidance for FY17 at 1.66Mt.

QUARTERLY COPPER PERFORMANCE

Output at Escondida, which BHP operates with a 57.5% stake, amounted to 147,000t of copper in concentrate and 70,500t in cathodes in the quarter, down 7.9% and 0.6%, respectively. Compared sequentially, Escondida copper production decreased 19%, reflecting lower grade, water availability and planned maintenance during the period.

BHP kept its production guidance at Escondida unchanged at 1.07Mt for its FY17, with volumes weighted to the second half of the financial year.

The company is in the process of commissioning its 2,500l/s desalination plant for Escondida, which together with the ramp up of the US$180mn Los Colorados extension project in late 2017 financial year, will allow Escondida to operate three concentrators simultaneously during the 2018 financial year.

Once the three concentrators are running, Escondida should be able to process 375,000t/d, producing 1.2Mt/y through 2025.

Escondida's gold and silver production was up 15.8% and 4.06% to 27,561oz and 1.23Moz, respectively.

BHP's other Chilean copper unit, the Pampa Norte division, which includes the Spence and Cerro Colorado mines, reported 9.33% growth in production to 62,100t in fiscal Q1, thanks to improved recoveries at Cerro Colorado.

The Melbourne-based company said the Spence recovery optimization (SRO) project is progressing to plan, and is expected to support an annualized production run rate of 200,000t/y late in the December 2016 quarter.

In late August, BHP suspended Cerro Colorado's ore handling plant No. 2, following the failure of a transfer chute, which is expected to take two months to fix. This, the firm said, will further reduce production in the December 2016 quarter.

However, production guidance at Pampa Norte was kept unchanged. Output is expected to be higher than the prior year's, supported by the SRO project and a strong second half.

At Olympic Dam in Australia, production was impacted by a state-wide power outage, which resulted in a 25.5% decline in production to 40,900t in fiscal Q1. Guidance for the year of about 200,000t is under review following the outage, BHP said.

The company said mineral exploration expenditures during fiscal Q1 were US$34mn, of which US$34mn was expensed. Greenfield mineral exploration focused on advancing copper targets in Chile, Peru, Canada, Australia and the US.

ANTAMINA

The 33.75%-owned Antamina mine in Peru contributed 34,100t of copper in concentrate on an equity basis in fiscal Q1 versus 35,100t last year. Production guidance for FY17 remains unchanged at 130,000t.

Antamina saw its quarterly zinc contribution fall 25.4% to 15,367t, as silver production contracted 23.8% to 1.35Moz and lead output rose 33.7% to 1.15Mt. Molybdenum reached 561t, or 510% higher year-on-year.

IRON ORE

BHP reported quarterly iron ore production of 57.6Mt, down from 61.3Mt in the same three months of last year.

Mining and processing operations at its Brazilian pellet JV Samarco remain suspended following the tailings dam collapse of November 2015. The miner kept iron ore production guidance for the full year at 228-237Mt.

COLOMBIAN COAL

Energy coal production at BHP's 33.3%-owned Cerrejón mine in Colombia was up 15.9% to 2.93Mt on an equity basis in the quarter.