BHP Leans into Copper, Warns of Coronavirus Impact

- February 18th, 2020

The Australian company said it believes copper’s fundamentals are sound, even with the coronavirus outbreak weighing on Chinese demand.

Australian mining giant BHP (ASX:BHP,NYSE:BHP,LSE:BLT) has reported a 7 percent increase in copper production year-on-year across its portfolio for the six months ended December 31, 2019.

Overall, the company produced 885,000 metric tons of copper over the period, according to its most recent financial results, released on Tuesday (February 18). That includes 602,000 metric tons from the Escondida mine in Chile, which saw a 4 percent increase year-on-year.

Guidance for copper production for the entirety of the 2019 to 2020 financial year is unchanged.

 

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“Despite near term uncertainty — due to the coronavirus outbreak, trade policy and geopolitics — we remain convinced about the positive underlying fundamentals of our commodities,” said CEO Mike Henry in the release.

“We see enormous potential to reliably deliver exceptional financial and operational performance, and to grow value and returns.”

Speaking to reporters following the release of the results, Henry stressed the importance of leaning into “future facing” metals like copper and nickel.

“We do have some growth ahead of us in both of those commodities but if I think to the far future we’d like to have more options.”

In other commodities, the company reported an overall 2 percent increase in iron ore production (to 121 million metric tons), and decreases in production from both its metallurgical and thermal coal operations, as well as its petroleum and nickel operations.

Nevertheless, Henry said that the company is in “good shape.”

“We delivered a strong set of half-year results, grounded in solid operational performance. Underlying (earnings before interest, taxation, depreciation and amortization) was up 15 per cent to US$12 billion, and return on capital employed increased to 19 per cent. With solid cash flow, the board announced an interim dividend of US$0.65 per share, our second highest on record,” he said.

BHP’s economic outlook, published in its results, urges caution, with the company dedicating half of its commentary to China.

“The 2019 coronavirus disease outbreak, trade policy and geopolitics are key uncertainties (for outlook),” it states. “If the viral outbreak is not demonstrably well contained within the March quarter, we expect to revise our expectations for economic and commodity demand growth downwards.”

BHP added that there is a difference in demand lost forever due to foregone transport services (requiring petroleum) and a temporary drop in demand for copper and steel, which could be made up later.

Looking more closely at commodities, the company said that it expects iron ore supply conditions to return to normal over a one to two year period following last year’s Brumadinho disruption.

“Prices are likely to be volatile as that adjustment plays out,” BHP said.

In terms of copper, the company anticipates that demand will continue to grow — though with the aforementioned caveat of the coronavirus impact factored in — due to sound fundamentals.

Click here for details on BHP’s potash production in 2019.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.

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