BHP eases iron ore production

BHP Billiton has cut its iron ore production target for the second time in three months, a move that could help bolster iron ore prices.

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The resources giant expects to produce 229 million tonnes of iron ore in the 2015/16 financial year, down from its previous target of 237 million tonnes, after bad weather and rail maintenance work affected operations in Western Australia.

BHP had already reduced its target by 10 million tonnes in February following the suspension of operations at the Samarco joint venture mine in Brazil following a fatal dam collapse.

“Even though it is a trimmed forecast, the market is looking at it as a positive,” IG market strategist Evan Lucas said.

“These issues mean BHP is being moderated on the supply side, and from an underlying business perspective, that’s a good thing.”

Rival miner Rio Tinto has plans to reduce production in 2017 because of delays in a driverless train program at its Pilbara operations.

BHP shares powered above $20 for the first time in five months, up 3.6 per cent at $20.385 at 1350 AEST, partially helped by iron ore prices rebounding above $US60.

The miner’s production dropped 10 per cent in the three months to March to 53 million tonnes, largely due to the shutdown at Samarco after a fatal dam collapse.

The mine normally produces 20 million tonnes a year, but operations have been suspended since November.

Samarco, jointly owned by BHP and Brazil’s Vale, has agreed to pay Brazilian authorities up to $US2.3 billion over six years for compensation and environmental restoration.

“Over the last 12 months, we have taken a number of steps to strengthen BHP Billiton, including asset sales and deferral of investment,” BHP chief executive Andrew Mackenzie said.

“While these measures will reduce our output this year, they have increased our focus on our highest quality operations and will support stronger margins and returns.”

BHP said it has also started a two year rail maintenance program in WA during the quarter. The program is likely to further push back an eventual increase in production capacity there to 290 million tonnes.

The company reaffirmed production guidance for its petroleum, copper and coal businesses.

Petroleum production dropped three per cent in the March quarter, reflecting lower drilling activity in the US shale business and natural field decline in its conventional assets.

In a sign of improving sentiment for its petroleum business, BHP plans to spend a higher-than-estimated $US640 million in 2015/16 on exploration for future growth opportunities, particularly in Trinidad & Tobago and the Gulf of Mexico.

Copper production in the March quarter fell 12 per cent, but the company expects to maintain its annual target of 1.5 million tonnes, helped by a jump in output at the Olympic Dam operations in South Australia.

Thermal coal production was down nearly a quarter to 8 million tonnes.