Coronavirus Update

BHP Group Plc - Operational Review March 2021

This content has been sourced from: https://www.investegate.co.uk/bhp-group-plc--bhp-/...

BHP OPERATIONAL REVIEW
FOR THE NINE MONTHS ENDED 31 MARCH 2021

Note: All guidance is subject to further potential impacts from COVID-19 during the 2021 financial year.

· Record production was achieved at Western Australia Iron Ore (WAIO) and record average concentrator throughput was delivered at Escondida.

· Production guidance for the 2021 financial year remains unchanged for petroleum and iron ore. Copper guidance has increased to between 1,535 kt and 1,660 kt and reflects stronger than expected performance at Escondida. Metallurgical coal guidance has been reduced to between 39 and 41 Mt as a result of significant wet weather impacts during the December 2020 and March 2021 quarters. Energy coal guidance has been reduced to between 18 and 20 Mt as a result of significant weather impacts at New South Wales Energy Coal (NSWEC) and lower than expected volumes at Cerrejón.

· Full year unit cost guidance(1) (based on exchange rates of AUD/USD 0.70 and USD/CLP 769) remains unchanged for Petroleum and WAIO. Unit costs for Escondida have been lowered to be between US$0.95 and US$1.10(1) per pound, reflecting strong production and lower deferred stripping costs.  Unit costs for Queensland Coal have been increased to be between US$74 and US$78(1) per tonne, reflecting lower expected volumes for the full year. 

· The Bass Strait West Barracouta gas project achieved first production in April 2021, and is on schedule and budget. Our major projects under development are also progressing to plan. The Ruby project in Trinidad and Tobago is progressing ahead of schedule and on budget, with first production on track for May 2021. South Flank is tracking well with commissioning activities planned for the June 2021 quarter and is on schedule for first production in the middle of the 2021 calendar year. Jansen Stage 1 project remains on track for Final Investment Decision in the middle of the 2021 calendar year.

 

Production

 

Mar YTD21

(vs Mar YTD20)

 

Mar Q21

(vs Dec Q20)

 

Mar Q21 vs Dec Q20 commentary

 

Petroleum (MMboe)

75.8
(8%)

25.4
7%

Higher volumes reflect increased Shenzi working interest (following completion of the acquisition in November 2020) and impacts from Hurricanes Delta and Zeta in the Gulf of Mexico in the prior quarter. This was partially offset by lower seasonal demand at Bass Strait.

Copper (kt)

1,232.7
(6%)

391.4
(9%)

Lower volumes primarily as a result of decreased throughput at Escondida, reflecting the impact of a reduced operational workforce due to the continuation of COVID-19 restrictions, and lower concentrator feed grade.

Iron ore (Mt)

188.3
4%

59.9
(4%)

Lower volumes at WAIO reflects weather impacts and planned O re Handling Plant and stacker maintenance at Newman, partially offset by improved car dumper performance.

Metallurgical coal (Mt)

28.8
(2%)

9.6
1%

Queensland Coal volumes in line with prior quarter as operations continue to be impacted by significant wet weather events.

Energy coal (Mt)

13.0
(26%)

4.8
34%

Higher volumes at Cerrejón as a result of a strike in the prior period, partially offset by lower volumes at NSWEC due to significant wet weather impacts and increased washed coal in response to reduced port capacity following damage to a shiploader at the Newcastle port.

Nickel (kt)

66.6
19%

20.4
(15%)

Lower volumes largely as a result of planned maintenance undertaken at the Kwinana refinery.

Group copper equivalent production was marginally lower over the nine months ended March 2021. Strong underlying operational performance was offset by the impacts of planned maintenance, natural field decline, copper grade decline and adverse weather.

1

 

Summary

BHP Chief Executive Officer, Mike Henry:

"BHP's strong safety and operational performance continued during the quarter, with record year-to-date production at Western Australia Iron Ore, the Goonyella Riverside metallurgical coal mine in Queensland and concentrator throughput at Escondida in Chile.

We are reliably executing our major projects, bringing on new supply in copper, petroleum and iron ore. The Spence Growth Option and Samarco are ramping up and West Barracouta, in Petroleum, started production this month. First production from Petroleum's Ruby project is expected in the coming weeks and South Flank, with its higher grade and lump proportion, is on track to begin production in the middle of the year.

BHP continues to deliver on decarbonising, in line with the Paris Agreement goals. We have established emissions reduction partnerships with three major steelmakers in China and Japan whose combined output equates to around 10 per cent of global steel production. In shipping, we have successfully completed an initial trial of marine biofuels, in addition to the tender awarded last year for LNG-powered iron ore vessels. In our own operations, we have established significant renewable power supply agreements for our Kwinana nickel refinery, Queensland Coal operations, and Escondida and Spence copper mines.

With our focus on keeping our people safe, costs down and productivity up, we are well positioned to finish the year strongly and continue delivering the essential products the world needs."

Operational performance

Production and guidance are summarised below.

Note: All guidance is subject to further potential impacts from COVID-19 during the 2021 financial year.

Production

Mar
YTD21

Mar
Q21

Mar YTD21
vs
Mar YTD20

Mar Q21
vs
Mar Q20

Mar Q21
vs
Dec Q20

Previous
FY21
guidance

Current
FY21
guidance

 

Petroleum (MMboe)

 75.8

 25.4

(8%)

1%

7%

95 - 102

95 - 102

Copper (kt)

 1,232.7

 391.4

(6%)

(8%)

(9%)

1,510 - 1,645

1,535 - 1,660

  Escondida (kt)

 821.5

 249.3

(8%)

(14%)

(13%)

970 - 1,030

1,010 - 1,060

  Pampa Norte (kt) 

 148.8

 52.0

(21%)

(19%)

(4%)

240 - 270

225 - 255

  Olympic Dam (kt) 

 154.5

 55.4

25%

44%

16%

180 - 205

180 - 205

  Antamina (kt)

 107.9

 34.7

1%

5%

(10%)

120 - 140

120 - 140

Iron ore(i) (Mt)

 188.3

 59.9

4%

0%

(4%)

245 - 255

245 - 255

  WAIO (100% basis) (Mt)

 211.3

 66.7

3%

(2%)

(5%)

276 - 286

276 - 286

Metallurgical coal (Mt)

 28.8

 9.6

(2%)

4%

1%

40 - 44

39 - 41

  Queensland Coal (100% basis) (Mt)

 51.4

 17.3

(1%)

8%

2%

71 - 77

70 - 73

Energy coal (Mt)

 13.0

 4.8

(26%)

(17%)

34%

21 - 23

18 - 20

  NSWEC (Mt)

 9.8

 3.0

(12%)

(22%)

(8%)

15 - 17

14 - 15

  Cerrejón (Mt)

 3.2

 1.8

(50%)

(9%)

417%

~6

4 - 5

Nickel (kt)

 66.6

 20.4

19%

(2%)

(15%)

85 - 95

85 - 95

(i)  Iron ore comprises WAIO and Samarco.

2

 

 

Major development projects

At the end of March 2021, BHP had four major projects under development in petroleum, iron ore and potash, with a combined budget of US$8.5 billion over the life of the projects. Our major projects under development are tracking to plan.

In March 2021, the US Department of Agriculture directed the US Forest Service to rescind the Resolution Copper Mining (RCM) project's Final Environmental Impact Statement and the draft Record of Decision that were both issued in January 2021. BHP supports RCM's collaboration with the US Forest Service, and its commitment to further consultation with local communities and Native American tribes in an effort to seek consent, as it continues to study the project.

The Jansen Stage 1 project in Canada is expected to be presented to the BHP Board for Final Investment Decision in the middle of the 2021 calendar year.

Corporate update

On 9 April 2021, Samarco announced that it filed for judicial reorganisation (JR) with the Commercial Courts of Belo Horizonte, State of Minas Gerais, Brazil. The request for JR was granted by the Belo Horizonte Justice on 12 April 2021. The JR is a means for Samarco to restructure its financial debts in order to establish a sustainable independent financial position for Samarco to continue to rebuild its operations safely and meet its Renova Foundation obligations. Samarco's filing follows unsuccessful attempts to negotiate a debt restructure with financial creditors and multiple legal actions filed by those creditors which threaten Samarco's operations. Samarco's operations will continue during the JR and restructure process. The JR does not affect Samarco's obligation or commitment to make full redress for the 2015 Fundão dam failure, and it does not impact Renova Foundation's ability to undertake that remediation and compensation.

In February 2021, we signed a memorandum of understanding (MOU) with a large Japanese steel producer, JFE, to jointly study technologies and pathways capable of making material reductions to greenhouse gas emissions from the integrated steelmaking process. We have agreed to invest up to US$15 million over the five-year partnership.

In March 2021, we also signed a MOU with China's HBIS Group Co., Ltd (HBIS), one of the world's largest steelmakers and one of our major customers of iron ore, with the intention to invest up to US$15 million over three years to jointly study and explore greenhouse gas emissions reduction technologies and pathways. The three-year partnership intends to collaborate on three priority areas: hydrogen-based direct reduction technology, the recycling and reuse of steelmaking slag, and the role of iron ore lump utilisation to help reduce emissions from ironmaking and steelmaking.

The partnerships with JFE and HBIS follow other investments to support the reduction of value chain emissions, including up to US$35 million for the collaboration with China's largest steelmaker, China Baowu (November 2020), awarding our first LNG-fuelled Newcastlemax bulk carriers contract (September 2020), with the aim to reduce CO2-e emissions by 30 per cent per voyage and a successfully completed marine biofuel trial which enables us to develop an informed strategy on the structural supply and use of biofuels to support our key shipping routes (April 2021). The advanced biofuel reduces CO2-e emissions by 80 to 90 per cent well-to-exhaust compared with heavy fuel oil (HFO) and very-low sulphur fuel oil (VLSFO), and uses sustainable waste and residue streams as feedstock.

In February 2021, we also executed a 10-year PPA contract with Merredin Solar Farm to supply up to 50 per cent of the Nickel West Kwinana Refinery electricity needs by 2024, based on 2020 financial year levels. This contract will further increase the sustainability of the nickel produced by Nickel West and will help to reduce emissions from electricity at the refinery by up to 50 per cent.

3

Petroleum

Production

 

Mar YTD21

Mar Q21

Mar YTD21
vs
Mar YTD20

Mar Q21
vs
Mar Q20

Mar Q21
vs
Dec Q20

Crude oil, condensate and natural gas liquids (MMboe)

 33.8

 11.6

(10%)

0%

8%

Natural gas (bcf)

 252.0

 82.6

(7%)

2%

5%

Total petroleum production (MMboe)

 75.8

 25.4

(8%)

1%

7%

Petroleum   Total petroleum production decreased by eight per cent to 76 MMboe. Guidance for the 2021 financial year remains unchanged at between 95 and 102 MMboe, with volumes expected to be in the upper half of the guidance range.

Crude oil, condensate and natural gas liquids production decreased by 10 per cent to 34 MMboe reflecting lower demand at Bass Strait and North West Shelf, and production impacts at Atlantis due to planned tie-in and commissioning activities in the first half of the year and unplanned downtime in the March 2021 quarter, as well as natural field decline across the portfolio. Production was further impacted by higher downtime at our Gulf of Mexico assets due to a more active hurricane season in the first half of the year. These impacts were partially offset by the earlier than scheduled achievement of first production from the Atlantis Phase 3 project in the September 2020 quarter and the acquisition of an additional 28 per cent working interest in Shenzi, completed on 6 November 2020.

Natural gas production decreased by seven per cent to 252 bcf, reflecting planned shutdowns at Angostura related to the Ruby tie-in, a decrease in tax barrels at Trinidad and Tobago in accordance with the terms of our Production Sharing Contract, lower domestic gas sales at Bass Strait and North West Shelf in the first half of the year , and natural field decline across the portfolio. This decline was partially offset by higher domestic gas sales at Macedon.

Projects

Project and
ownership

Capital expenditure US$M

Initial production target date

Capacity

Progress

Ruby
(Trinidad & Tobago)
68.46% (operator)

283

H1 CY21

Five production wells tied back into existing operated processing facilities, with capacity to produce up to 16,000 gross barrels of oil per day and 80 million gross standard cubic feet of natural gas per day.

Ahead of schedule and on budget. The overall project is 78% complete.

Mad Dog Phase 2
(US Gulf of Mexico)
23.9% (non-operator)

2,154

Mid-CY22

New floating production facility with the capacity to produce up to 140,000 gross barrels of crude oil per day.

On schedule and budget.
The overall project is 90% complete.

The Bass Strait West Barracouta project is on schedule and budget, and achieved first production in April 2021.

In March 2021, we successfully completed the drilling of Shenzi North GC608 development well which is within the Wilding discovery, and commenced drilling of the first of two Shenzi infill wells which is expected to be completed in the June 2021 quarter. A second Shenzi infill well is planned to be drilled in the June 2021 quarter. The successful acquisition of an increased working interest in Shenzi in November 2020 realises further value from the continued Shenzi development.

The Mad Dog Phase 2 project achieved a major milestone in April 2021 as the semi-submersible floating production platform, Argos, arrived in the US from South Korea. The platform will undergo final preparatory work and regulatory inspections before being towed offshore for installation. First production from Mad Dog Phase 2 is expected in the middle of the 2022 calendar year.

 

4

Petroleum exploration

No exploration and appraisal wells were drilled during the March 2021 quarter. Petroleum exploration expenditure for nine months ended March 2021 was US$230 million, of which US$211 million was expensed. Our exploration and appraisal program for the 2021 financial year is now expected to be approximately US$400 million (reduced from US$450 million), due to appraisal well phasing through the June 2021 quarter and the September 2021 quarter.

Copper

Production

 

Mar YTD21

Mar Q21

Mar YTD21
vs
Mar YTD20

Mar Q21
vs
Mar Q20

Mar Q21
vs
Dec Q20

Copper (kt)

 1,232.7

 391.4

(6%)

(8%)

(9%)

Zinc (t)

 109,606

 33,299

47%

5%

(21%)

Uranium (t)

 2,653

 834

0%

7%

(12%)

Copper Total copper production decreased by six per cent to 1,233 kt. Guidance for the 2021 financial year increased to between 1,535 and 1,660 kt from between 1,510 and 1,645 kt.

For the nine months to March 2021, our Chilean assets continued to operate with a substantial reduction in their operational workforces as a result of COVID-19 restrictions. The operating environment across our Chilean assets is expected to become more challenging in the June 2021 quarter, given escalating COVID-19 infections , increased pressures on Chile's health system and border restrictions. Reductions in our on-site workforce are forecast to remain substantial.

Escondida copper production decreased by eight per cent to 821 kt with record concentrator throughput of 378 ktpd achieved offset by the impact of lower concentrator feed grade and lower cathode volumes. Concentrator throughput continues to be prioritised over cathode production as a result of the reduced operational workforce and to prioritise yield of ore. Guidance for the 2021 financial year has been increased to between 1,010 and 1,060 kt from between 970 and 1,030 kt. Production in the 2022 financial year is expected to be broadly in line with the 2021 financial year guidance and reflects a continuation of the impacts of COVID-19 and a need to catch up on mine development due to reduced material movement in the current financial year. Guidance of an annual average of 1.2 Mt of copper production over the next five years remains unchanged, with production expected to be weighted towards the latter years.

On 1 April 2021, Escondida successfully completed negotiations for a new collective agreement that applies to the Intermel Union of Operators and Maintainers (Intermel), effective for 24 months from 1 April 2021. Escondida's collective agreement with Union No1 of Operators and Maintainers expires on 1 August 2021 and negotiations are expected to commence in June 2021. 

Pampa Norte copper production decreased by 21 per cent to 149 kt, largely due to planned maintenance at Spence and the impact of a reduced operational workforce as a result of COVID-19 restrictions. Guidance for the 2021 financial year has been lowered to between 225 and 255 kt from between 240 and 270 kt, reflecting COVID-19 related impacts on the ramp-up of the Spence Growth Option (SGO). SGO achieved first copper sales, on schedule, in March 2021, following first copper production in December 2020. The ramp-up to full production capacity at SGO is still on track and is expected to take approximately 12 months from first production, following which Spence is expected to average 300 ktpa of production (including cathodes) over the first four years.

Spence's collective agreement with Union for Operators and Maintainers expires on 30 May 2021 , with negotiations for a new agreement currently underway.

5

Olympic Dam copper production increased by 25 per cent to 155 kt, reflecting improved smelter performance and stability. Production for the March 2021 quarter was 55 kt, the highest quarterly production rate in five years. The new refinery crane is in the final stages of commissioning . Guidance for the 2021 financial year remains unchanged at between 180 and 205 kt, with volumes expected to be in the upper half of the guidance range. Production in the 2022 financial year is expected to be lower as a result of the major smelter maintenance campaign planned for the first half of the year.

Antamina copper production increased by one per cent to 108 kt and zinc production increased by 47 per cent to 110 kt, reflecting higher copper and zinc head grades. Guidance for the 2021 financial year remains unchanged, with copper production expected to be at the upper end of the 120 to 140 kt guidance range, and zinc production of between 140 and 160 kt.

Iron Ore

Production

 

Mar YTD21

Mar Q21

Mar YTD21
vs
Mar YTD20

Mar Q21
vs
Mar Q20

Mar Q21
vs
Dec Q20

Iron ore production (kt)

 188,289

 59,855

4%

0%

(4%)

Iron ore Total iron ore production increased by four per cent to 188 Mt. Guidance for the 2021 financial year remains unchanged at between 245 and 255 Mt. Volumes are expected to be in the upper half of the guidance range as a result of strong performance at WAIO.

WAIO production increased by three per cent to a nine month record 187 Mt (211 Mt on a 100 per cent basis), reflecting record production at Jimblebar and s trong performance across the supply chain, with improved train cycle times and car dumper performance and reliability. This record performance was achieved despite significant weather impacts in December 2020, January 2021 and February 2021, and the planned Mining Area C and South Flank major tie-in activity . Commissioning activities for South Flank are expected to commence in the June 2021 quarter. Volumes for the 2021 financial year are expected to be in the upper half of the guidance range of between 244 and 253 Mt (276 and 286 Mt on a 100 per cent basis).

Samarco production was 915 kt, after iron ore pellet production re-commenced at one concentrator in December 2020. Production for the 2021 financial year is expected to be between 1 and 2 Mt (BHP share). Production capacity of approximately 8 Mtpa (100 per cent basis) is expected once operations are gradually ramped up.

Projects

Project and
ownership

Capital expenditure US$M

Initial production target date

Capacity

Progress

South Flank
(Australia)
85%

3,061

Mid-CY21

Sustaining iron ore mine to replace production from the 80 Mtpa (100 per cent basis) Yandi mine.

On schedule and budget.
The overall project is 95% complete.

6

Coal

Production

 

Mar YTD21

Mar Q21

Mar YTD21
vs
Mar YTD20

Mar Q21
vs
Mar Q20

Mar Q21
vs
Dec Q20

Metallurgical coal (kt)

 28,802

 9,590

(2%)

4%

1%

Energy coal (kt)

 13,014

 4,776

(26%)

(17%)

34%

Metallurgical coal Metallurgical coal production decreased by two per cent to 29 Mt (51 Mt on a 100 per cent basis). G uidance for the 2021 financial year has been reduced to between 39 and 41 Mt (70 and 73 Mt on a 100 per cent basis) from between 40 and 44 Mt (71 and 77 Mt on a 100 per cent basis) as a result of significant wet weather impacts during the December 2020 and March 2021 quarters. We continue to monitor for any potential impacts on volumes from restrictions on coal imports into China.

At Queensland Coal, strong underlying operational performance, including record stripping at BMA and record production at Goonyella, was offset by significant wet weather impacts across most operations and planned wash plant maintenance at Saraji and Caval Ridge in the first half of the year. At South Walker Creek, production decreased despite record truck and shovel stripping in the March 2021 quarter, as a result of higher strip ratios due to ongoing impacts from geotechnical constraints and lower yields.

Energy coal - Energy coal production decreased by 26 per cent to 13 Mt. Following a strike at Cerrejón and prolonged wet weather impacts at NSWEC, guidance for the 2021 financial year has been reduced to between 18 and 20 Mt from between 21 and 23 Mt .

NSWEC production decreased by 12 per cent to 9.8 Mt. This decrease reflects significant weather impacts, with more than double the amount of rainfall year-to-date compared with the same period in the prior year, including the wettest March on record, and higher strip ratios. Lower volumes also reflect an increased proportion of washed coal in response to reduced port capacity (following damage to a shiploader at the Newcastle port in November 2020) and widening price quality differentials. Production guidance for the 2021 financial year has been reduced to between 14 and 15 Mt from between 15 and 17 Mt.

Cerrejón production decreased by 50 per cent to 3.2 Mt largely as a result of a 91-day strike in the first half of the year and subsequent delays to the restart of production, as well as the impact of a reduced operational workforce due to COVID-19 restrictions. Guidance for the 2021 financial year has now been reduced to between 4 and 5 Mt from 6 Mt.

Other

Nickel production

 

Mar YTD21

Mar Q21

Mar YTD21
vs
Mar YTD20

Mar Q21
vs
Mar Q20

Mar Q21
vs
Dec Q20

Nickel (kt)

 66.6

 20.4

19%

(2%)

(15%)

Nickel - Nickel West production increased by 19 per cent to 67 kt as a result of major quadrennial maintenance shutdowns in the prior period and strong performance from the new mines. Production for the March 2021 quarter was impacted by the planned maintenance undertaken at the Kwinana refinery during the quarter. Guidance for the 2021 financial year remains unchanged at between 85 and 95 kt.

 

7

Potash project

Project and
ownership

Investment
US$M

Scope

Progress

Jansen Potash
(Canada)
100%

2,972

Investment to finish the excavation and lining of the production and service shafts, and to continue the installation of essential surface infrastructure and utilities.

The project is 91% complete.

Minerals exploration

Minerals exploration expenditure for the nine months to March 2021 was US$126 million, of which US$83 million was expensed. Greenfield minerals exploration is predominantly focused on advancing copper targets within Chile, Ecuador, Mexico, Peru, Canada, Australia and the south-west United States.

Drilling for copper targets is underway in the United States, Ecuador, and Chile. Further drilling is anticipated for copper in Peru and for nickel in Australia during the 2021 calendar year. At Oak Dam in South Australia, next stage resource definition drilling to inform future design is expected to commence around the middle of the 2021 calendar year.