BHP iron ore price realisation falls, production stable

Australian resources firm BHP expects to produce similar volumes of Western Australian (WA) iron ore in the financial year to 30 June 2023, as the 283mn t achieved on a 100pc basis in 2021-22.

BHP has been struggling to realise the price uplift expected from the ramp up of its 80mn t/yr South Flank project.

The firm achieved an average received price of $112.65/wet metric tonne (wmt) fob Port Hedland during January-June, down from $113.54/t in July-December and from $158.17/wmt for January-June 2021. The Argus 62pc ICX cfr Qingdao index averaged $139.62/dry metric tonne (dmt) in January-June, up from $136.71/dmt in July-December, but down from $183.41/dmt in January-June 2021.

BHP's average received price fell to 80.7pc of the average ICX in January-June from 83.1pc in July-December and 86.2pc in January-June 2021, despite most of its shipments being linked to index pricing for the month of shipping. This implies that South Flank is not yet delivering the uplift in grade and lump content expected in the longer term. South Flank, which largely replaces production from Yandi was designed to increase the average grade of BHP's ores from 61pc Fe to 62pc and its total proportion of lump sold from 25pc to 30-33pc. The mine reached an average rate of 67mn t/yr in June, putting the ramp up ahead of schedule.

The year to 30 June is the third year in a row that BHP has produced 283mn t from its WA operations, having jumped from 270.2mn t in 2018-19. BHP has set a target of 278mn-290mn t for 2022-23, which was in line with its 2021-22 guidance.

BHP's stable production profile reflects its focus on building more flexibility into its system to improve reliability rather than pushing up throughput. It also reflects difficult operating conditions because of Covid-19 absenteeism, widespread worker shortages and supply chain issues, set against a relatively benign wet season in the Pilbara region of WA.

The operating headwinds are adding to an inflationary cost environment for BHP's operations, with the firm expecting to come in within its cost guidance of $17.50-18.50/t for 2021-22, at its guidance exchange rate of $0.78 per Australian dollar. The Australian dollar has averaged $0.73 in 2021-22, with this weaker rate helping to keep costs down.

Total iron ore production from BHP's Pilbara mines was at 71.66mn t in April-June, up from 67.1mn t in the January-March quarter, which is affected by the wet season. Production was down from 72.85mn t in April-June 2021.

BHP's 50pc share of Vale-BHP Brazilian joint venture Samarco's production was 4.1mn t in 2021-22, following the restart of iron ore pellet production at one concentrator in December 2020. Production guidance for the 2022-23 financial year remains unchanged from 2021-22 at 3mn-4mn t for BHP's share.

By Jo Clarke

Iron ore prices $/dmt