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BHP Maintains Fiscal 2020 Iron Ore Production Guidance

Zacks Equity Research

BHP Group BHP recently released production details for the nine months ended Mar 31, 2020 and also stated that it is maintaining petroleum, iron ore and metallurgical coal production and cost guidance for fiscal 2020 despite the coronavirus pandemic. The company reported year-over-year growth in copper and iron ore production during the period under review. However, petroleum, metallurgical coal, energy coal and nickel production came in below the prior-year levels.

Production Details
In the nine months ended Mar 31, 2020, the company’s total iron ore production improved 3% to 181 Mt compared with the prior-year comparable period. Total petroleum production was 82 MMboe (thousand barrels of oil equivalent) for the period under review, down 10% year over year. Total copper production improved 5% year over year to 1,310 kt in the first nine months of fiscal 2020.
Metallurgical coal production was down 3% to 30 Mt in the period under review compared with the prior year. Energy coal production was 18 Mt, down 13%. Nickel production was down 4% year over year to 56 kt.
Fiscal 2020 Production Guidance Reaffirmed
In fiscal 2020, BHP Group still expects to produce between 242 and 253 Mt of iron ore. The company’s petroleum production guidance for fiscal 2020 is at 110-116 MMboe. Volumes are anticipated to be toward the lower end of the guidance range.

The company added that copper guidance for its operated assets is broadly unchanged and Antamina guidance is under review following temporary suspension of operations due to the coronavirus outbreak. Production guidance of Metallurgical coal for fiscal 2020 remains unchanged at 41-45 Mt. Volumes are now expected to be at the lower end of the guidance range following significantly higher rainfall during January and February 2020.  Following the Colombian government’s restrictions to contain the spread of COVID-19, the company decided to place Cerrejón on temporary care and maintenance. It has thus put energy coal guidance for fiscal 2020 under review. Nickel production for fiscal 2020 is now expected to be lower on a year-over-year basis.

Recently, Vale S.A VALE trimmed 2020 production guidance for iron, copper and nickel, and withdrew guidance for coal citing the uncertainty stemming from the coronavirus pandemic.

Fiscal 2020 Cost Guidance Maintained
Conventional Petroleum unit cost is projected at $10.50-11.50 per barrels of oil equivalent (boe) for fiscal 2020, up 0-9% over fiscal 2019. Escondida unit cost is projected at $1.20-$1.35 per pound, reflecting a rise of 5-18% over fiscal 2019. Western Australia Iron Ore costs are estimated at $13-14 per ton, which reflects a decline of 1% to 8% over the prior fiscal. Queensland Coal unit cost for the fiscal is expected at $67-$74 per ton compared with $69.44 per ton in fiscal 2019. Cost at New South Wales Energy Coal is projected at $55-61 per ton.
Six Major Projects on Track

As of Mar 31, 2020, BHP had six major projects under development in petroleum, copper, iron ore and potash. These projects have a combined budget of $11.4 billion over the life of the projects.
BHP Group anticipates major economies to contract in the June 2020 quarter, including the United States, Europe and India. Meanwhile, industrial activity in China is showing signs of early recovery, aided by supportive credit and fiscal policy. Backed by its strong cash flow, low debt levels and low cost operations BHP is poised well to sail through these troubled times.

Over the last year, BHP Group’s shares fallen 29.7%, compared with the industry’s decline of 19.3%.
BHP Group currently carries a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks in the basic materials space are Kinross Gold Corporation KGC and The Scotts Miracle-Gro Company SMG, both of which currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinross Gold has a projected earnings growth rate of 41.2% for the current year. The company’s shares have soared 95% over the past year.

Scotts Miracle-Gro has an estimated earnings growth rate of 15.9% for fiscal 2020. Its shares have rallied 42% in the past year.

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