BHP Billiton Limited (ASX: BHP)
Challenges in Coal Production: BHP Billiton Limited (ASX: BHP) edged lower on January 18, 2018 with the release of its operational review for half year ended December 31, 2017. The striking updates to note include that the group has reduced its coking coal export target for FY18 and financial results in February are said to have few exceptional items related to US president Donald Trump’s tax cuts and old conveyors at the Escondida copper mine in Chile. Particularly, production guidance for Metallurgical Coal has been reduced to between 41 and 43 Mt given challenging roof conditions at Broadmeadow that will continue through the March 2018 quarter, and geotechnical issues at Blackwater (coking coal mine). Unit cost guidance has also been slated to be negatively impacted. Owing to factors mentioned above, underlying EBIT in the December 2017 half year is expected to include impairment charges relating to conveyors at Escondida, in a range of US$250 million to US$350 million. On the other hand, the group shipped 72 million tonnes of iron ore from Western Australia during the quarter, well above the market expectations.
The group’s full year production and unit cost guidance have been maintained for Petroleum, Copper, Iron Ore and Energy Coal, and a record annualised production rate of 284 Mt (100% basis) was achieved at Western Australia Iron Ore (WAIO) for the December 2017 quarter. BHP’s major projects under development in Petroleum, Copper and Potash, with a combined budget of US$7.5 billion over the life of the projects, are said to be tracking well. In view of the trading scenario, guidance, and better production expected from multiple commodities in near term, we have a “Hold” on the stock at the current price of $30.78
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Production Highlights and Guidance (Source: Company Reports)
Whitehaven Coal Limited (ASX: WHC)
Stock price slump on lower coal guidance: Whitehaven Coal’s Limited’s (ASX: WHC) stock plunged by about 8.7% on January 18, 2018 at the back of reduction in its full year saleable coal output guidance. Owing to production disruption, full year coal guidance has been lowered to be between 20.5 million and 21 million tonnes from the previously disclosed range of 22 million to 23 million tonnes. On the other hand, the group expects Narrabri to return to appropriate operating rates early this year.
The group’s ROM coal production was flat at 5.4Mt for the quarter and 11.2Mt for the first half (up 2% over previous corresponding period) with saleable coal production slipping to 5.0Mt for the quarter and 10.9Mt for the first half (up 7% over previous corresponding period). Coal sales has been 5.8Mt for the quarter, which is up 10% on previous corresponding quarter, and 11.9Mt for the first half (up 16% over previous corresponding period). WHC has also paid about $198 million to shareholders as a capital return and dividend in November 2017.
Looking at the shortcomings and trading scenario, the stock looks “Expensive” at the current price of $4.40
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Production and Sales Summary (Source: Company Reports)
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