BHP on Track to Meet Iron Ore Guidance Despite Derailed Train

- November 21st, 2018

According to a report released this week, BHP will be able to meet its July 2018 to June 2019 iron ore guidance as long as there are no further disruptions — including from the weather as the north coast of Australia tips into the wet season.

The mess created by the intentional derailment of a runaway iron ore train in Western Australia is unlikely to carry over into global diversified miner BHP’s (ASX:BHP,NYSE:BHP,LSE:BLT) books, according to a report released this week.

According to the Argus Media report, BHP will be able to meet its July 2018-June 2019 guidance as long as there are no further disruptions — including from the weather as the north coast of Australia tips into the wet season.

Following the derailment on November 5, BHP “was able to resume partial deliveries on 10 November and has been able to ramp up rail services over the past week, despite some safety concerns related to the trains, which are becoming increasingly autonomous,” said the report.

BHP now says a failure in braking systems was behind the runaway train, which started moving after its operator got off to check a connection.

The failure and derailment has prompted the national safety regulator to issue a warning to all rail operators.

On shipping at BHP, the report found the disruption led to a 22 percent fall in tonnage loaded at Port Hedland compared to October, and a 30 percent compared to November 2017.

But Argus said the disruption caused by the derailment and severing of transport connections was “only over a two-week period” in November.

“BHP should be able to make up for this over the next six to eight weeks, assuming there are no other technical issues and the weather remains benign.”

According to Argus, maintenance work by BHP at its Port Hedland facilities earlier in the year and spare capacity in its rail system are the reason for its ability to rebound from the losses caused by the derailment, which saw a 268-wagon train reduced to twisted metal and spilled ore, severing transport connections.

Operations at the company’s Pilbara mines had remained online through the period of disruption, meaning there’s plenty of ore backed up to meet demand.

“At the same time, stockpiles at the mines will have been built up to ensure swift supply of ore into the rail system as soon as it is back up and running.”

BHP has set a guidance of 241 million to 250 million tonnes of iron ore this year, having produced 61 million tonnes in the September quarter.

On Wednesday (November 21), the company held an investor briefing on capital allocation in Melbourne, saying that it had learned lessons from past mistakes, and would be looking to allocate capital more wisely in the future to ensure it could weather cyclical markets.

On the ASX, BHP was trading at AU$31.60 on Wednesday, down 3.33 percent.

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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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