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BHP eyes big expansion of WA iron ore as it posts record results

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Stuart McKinnonThe West Australian
BHP chief executive Mike Henry.
Camera IconBHP chief executive Mike Henry. Credit: Brendon Thorne/Bloomberg

BHP boss Mike Henry has reiterated the company’s commitment to a “value over volume” mantra while flagging a possible 40 million tonne expansion of the mining giant’s powerhouse WA iron ore division.

The mining giant announced the proposed capacity upgrade for its Pilbara operations as it surprised the market with a higher than expected full-year profit and dividend, underpinned by a record sales result from WAIO.

The company issued 2023 production guidance for its Pilbara operations of 278–290Mt at costs of $US18-$US19/t, representing a 6 per cent increase on last year.

But BHP has set a medium-term goal of exceeding 300Mtpa from WAIO and flagged a possible expansion to 330Mtpa.

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Chief executive Mike Henry said the company believed it could achieve 300Mtpa through ongoing productivity improvements, but low-capex port debottlenecking, an additional car-dumper at Port Hedland and upstream mine expansion would be required to get to 330Mtpa.

“In the 2023 financial year, we are assessing expansion alternatives to take us towards 330Mtpa of production,” he said.

Mr Henry noted that the company had regulatory approvals in place to go to 330Mtpa in the high-margin WAIO business that had for three years running been the world’s lowest-cost major iron ore business.

He said the company would decide once WAIO expansion studies were completed whether those capital allocation opportunities stacked up well against other alternatives in BHP’s portfolio.

South Flank
Camera IconBHP’s South Flank in the Pilbara. Credit: Supplied

BHP’s proposed iron ore expansion comes as Brazilian giant Vale seeks to reclaim its crown as the world’s biggest iron ore producer from Rio Tinto, as the massive Simandou deposit in Guinea moves closer to development and as the company’s Pilbara rivals also seek to lift output.

But Mr Henry said “value over volume” remained a priority for the company and BHP would consider the impact of higher volumes on iron ore prices.

He maintained BHP’s competitive advantage meant the value to be created by an investment to expand capacity in iron ore would be attractive relative to others in the sector.

“The question for us is whether it’s going to be attractive relative to other options we have in the portfolio and there is a tonne of activity underway across the group right now to develop options in copper, in nickel and potash,” he said.

“All we’re doing at this point is studying the ability to get to 330Mtpa given how well the business has been performing, that doesn’t mean that we’ll trigger them.”

Mr Henry dismissed the significance of lower than expected Chinese retail, industrial output, investment data this week to suggest the Middle Kingdom would outperform the global economy as it emerged from COVID lockdowns and introduced stimulatory measures.

“We see that as being a tailwind for global growth,” he said.

“We’ve been quite clear that we see steel as moving into a plateau phase and then towards the back end of this decade starting to retreat in China no different that you see in other large global economies.”

Addressing the company’s results, Mr Henry said BHP had delivered strong operational performance and disciplined cost control to realise record underlying earnings of $US40.6b and record free cash flow of $US24.3b.

“These strong results were due to safe and reliable operations, project delivery and capital discipline, which allowed us to capture the value of strong commodity prices,” he said.

“We continue to make progress in building inclusive, diverse and high-performing teams and culture, and we remain unwavering in our focus on eliminating sexual harassment, bullying and racism from BHP.”

Mr Henry said BHP entered the 2023 financial year in great shape strategically, operationally and financially, and well prepared to manage an uncertain near-term environment.

“We are pursuing options to deliver greater value for shareholders by growing the business and our exposure to future-facing commodities,” he said.

His comments come a week after BHP announced an $8.4b cash bid for copper producer OZ Minerals, that was flatly rejected by the company’s board.

“We expect China to emerge as a source of stability for commodity demand in the year ahead, with policy support progressively taking hold,” he said.

“At the same time, we expect to see a slowdown in advanced economies as monetary policy tightens, as well as ongoing geopolitical uncertainty and inflationary pressures.

“The direct and indirect impacts of Europe’s energy crisis are a particular point of concern.”

Mr Henry said tight labour markets would remain a challenge for global and local supply chains.

“Waves of COVID-19 infection continue to occur in the communities where we operate, and we are planning accordingly,” he said.

BHP posted 39 per cent jump in underlying earnings to $US23.8 billion, beating consensus analysts expectations of $US21.6b.

It declared a final dividend of $US1.75 per share ($2.49), bringing total cash dividends for the year to $US3.25 per share, equivalent to a payout ratio of 77 per cent.

BHP shares closed up $1.59, or 4 per cent, at $40.51 on Tuesday.

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